Southern District of New York

"This Office had been advised by the State Department that, pursuant to their request, Devyani Khobragade was to have left the United States this afternoon. In a letter sent to the Court upon the filing of the Indictment of Ms. Khobragade, we stated our understanding that she had left the country. Subsequent to the filing of the letter, Ms. Khobragade’s lawyer advised that she has not, in fact, departed the U.S."

U.S. v. Devyani Khobragade Indictment Exhibits
U.S. v. Devyani Khobragade Indictment
U.S. v. Devyani Khobragade Govts 1.9.2014 Letter to Judge Scheindlin

BioScrip Agrees to Pay $15 Million and Makes Extensive Factual Admissions to Resolve Claims

Preet Bharara, the United States Attorney for the Southern District of New York, and Ronald T. Hosko, the Assistant Director of the Federal Bureau of Investigation, Criminal Investigative Division (“FBI”), announced today that the United States has filed additional civil healthcare fraud claims in Manhattan federal court against NOVARTIS PHARMACEUTICALS CORP. (“NOVARTIS”) and BIOSCRIP, INC. (“BIOSCRIP”). The Government’s Amended Complaint seeks treble damages and civil penalties under the False Claims Act against NOVARTIS and BIOSCRIP for NOVARTIS providing kickbacks, in the form of patient referrals and in the guise of rebates, to BIOSCRIP in exchange for BIOSCRIP recommending refills to Exjade patients. The lawsuit alleges that, as a result of this kickback scheme, Medicare and Medicaid have paid tens of millions of dollars in reimbursements based on false, kickback-tainted claims for Exjade shipped by BIOSCRIP.

Simultaneous with the filing of the Amended Complaint, U.S. District Judge Colleen McMahon approved a settlement to resolve the United States’ claims against BIOSCRIP. Under that settlement, which takes into account BIOSCRIP’s limited financial resources, BIOSCRIP (i) agrees to pay $11,685,705.43 to the United States; (ii) admits numerous facts concerning its relationship with NOVARTIS; and (iii) agrees to cooperate with the United States in the prosecution of the claims against NOVARTIS. BIOSCRIP has also agreed in principle to pay $3.31 million to a group of States to settle the States’ claims based on the same alleged conduct.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, Novartis is caught having orchestrated yet another scheme whereby it used the lure of kickbacks to co-opt a healthcare providers’ independence and, in this case, turned pharmacy employees at BioScrip into salespeople for Exjade. By allegedly having BioScrip promote refills under the guise of purported ‘counseling’ and ‘education,’ Novartis caused patients to receive one-sided advice that did not discuss Exjade’s serious, potentially life-threatening, side effects. Further, by hiding this illegal quid pro quo from federal healthcare programs, Novartis caused the public to pay tens of millions of dollars for kickback-tainted drugs.”

FBI Assistant Director Ronald T. Hosko said: “Investigations such as these are a high priority for the FBI and we will aggressively pursue providers that boost their profits at the expense of Medicare and other government programs. Due to the potential impact to the nation’s health care system and to the public from these types of multifaceted schemes, we have created a centralized team to provide nationwide support to our field offices called the Major Provider Response Team. The FBI is committed to working with our partners in these types of investigations and appreciates the public’s involvement in the process.”

According to the allegations contained in the Amended Complaint filed today in Manhattan federal court:

NOVARTIS markets and manufactures Exjade, an iron chelation drug approved for use by patients who have iron overload resulting from blood transfusions. Between February 2007 and May 2012, NOVARTIS orchestrated a scheme whereby it offered kickbacks, in the form of patient referrals and under the guise of rebates, to BIOSCRIP, a specialty pharmacy, in exchange for BIOSCRIP increasing its Exjade refills through biased recommendations to patients.

BIOSCRIP was part of a Novartis-created exclusive distribution network for Exjade, and through this network, Novartis was able to refer Exjade patients to particular pharmacies within the network. In order to obtain greater numbers of patient referrals and rebates, BIOSCRIP, in coordination with NOVARTIS, implemented a program of calling patients to recommend Exjade refills or to get patients who stopped ordering Exjade refills to resume ordering them.

NOVARTIS and BIOSCRIP promoted these calls as part of an effort to offer clinical “counseling” or “education” to Exjade patients. In fact, however, the real purpose behind this call program was to obtain more refill orders so that Novartis could increase its Exjade sales and meet its national Exjade sales target and BIOSCRIP, in turn, could get more patient referrals and higher rebates. Thus, the BIOSCRIP employees making those calls to Exjade patients emphasized the importance of getting refills, but ignored Exjade’s serious, potentially life-threatening side effects, such as kidney failure and gastrointestinal hemorrhage. Indeed, according to a former BIOSCRIP supervisor, the incentives offered by NOVARTIS caused BIOSCRIP to focus exclusively on getting Exjade patients to order refills, rather than caring for these patients. This Exjade scheme violated the federal anti-kickback statute, which prohibits the offer or payment of remuneration to induce the purchase or recommendation of any drug or service covered by Medicare, Medicaid, or another federal healthcare program.

By orchestrating this scheme, NOVARTIS and BIOSCRIP further caused pharmacies to submit tens of thousands of claims to Medicare and Medicaid, resulting in those programs paying out tens of millions of dollars in reimbursements based on false claims tainted by kickbacks.

Further, as part of its settlement with the United States, BIOSCRIP made extensive factual admissions, including, among other things, that:

• BIOSCRIP was one of three specialty pharmacies permitted to dispense Exjade as part of “EPASS,” NOVARTIS’s distribution network for Exjade.
• NOVARTIS controlled how approximately half of the patient prescriptions received by EPASS were distributed among BIOSCRIP and the other two EPASS pharmacies.
• In 2007, NOVARTIS informed BIOSCRIP that the level of refill orders among BioScrip’s Exjade patients was below the refill levels achieved by the other two EPASS pharmacies. NOVARTIS demanded that BIOSCRIP implement a Performance Improvement Plan (“PIP”) due to its low refill levels relative to the other EPASS pharmacies. NOVARTIS informed BIOSCRIP that it had to increase its refill levels or NOVARTIS would cut off the flow of certain patient referrals to BIOSCRIP and, potentially, remove BIOSCRIP from EPASS.
• In response, and to avoid losing access to patient referrals, BIOSCRIP launched an intensive effort to (i) increase overall patient orders for Exjade refills, and (ii) “restart” many patients who had stopped ordering Exjade. To achieve that goal, BIOSCRIP hired a group of staff to work exclusively on Exjade (the “Exjade Team”). BIOSCRIP directed the Exjade Team to call many patients to encourage them to order refills and to encourage many patients who had stopped ordering refills to “restart” Exjade.
• The efforts of the Exjade Team resulted in significant increases in Exjade refill levels at BIOSCRIP – by September 2007, the refill levels at BIOSCRIP were higher than at the other two EPASS pharmacies. Recognizing the improvement in refill levels at BIOSCRIP, NOVARTIS continued to direct patient referrals to BIOSCRIP.
• BIOSCRIP developed a protocol, named ScripCare, for the Exjade Team to call patients to encourage many patients to order refills and to encourage many patients who had stopped ordering refills to restart Exjade. In developing ScripCare, BIOSCRIP shared key elements with NOVARTIS.
• The Exjade marketing team at NOVARTIS provided input on aspects of the ScripCare protocol, including how to discuss potential side effects with Exjade patients.
• In 2007, NOVARTIS began issuing monthly “Exjade Scorecards” to BIOSCRIP and the other two EPASS pharmacies that measured, among other things, “adherence” scores. Based on discussions with NOVARTIS, BIOSCRIP knew that the “adherence” scores in the Exjade Scorecards were designed to show how long Exjade patients continued to order refills. Later that year, NOVARTIS began discussions with BIOSCRIP about a plan to allocate more patient referrals to BIOSCRIP if, according to the adherence scores in the Exjade Scorecards, it remained the highest performer in terms of obtaining refill orders.
• In 2008, BIOSCRIP agreed to a new patient allocation plan proposed by NOVARTIS, which linked the percentage of patient referrals for BIOSCRIP to its refill rates as measured by the Exjade Scorecard.
• In 2011, BIOSCRIP was placed under a “corrective action” plan by NOVARTIS due to its low refill rates relative to the other EPASS pharmacies and other issues, and stopped receiving certain patient referrals. In response, BIOSCRIP launched an intensive effort to “restart” many patients and to encourage many patients to order refills. By late 2011, BIOSCRIP’s refill rates had increased significantly; and, starting in January 2012, NOVARTIS increased its allocation of patient referrals to BIOSCRIP based on its higher refill rates relative to the other EPASS pharmacies in late 2011.

The additional claims in the Amended Complaint seek treble damages and penalties under the False Claims Act for the tens of millions of dollars in reimbursements that Medicare and Medicaid paid for Exjade shipments that resulted from the kickback scheme involving NOVARTIS and BIOSCRIP. In addition, the Government seeks compensatory damages under the common law for the tens of millions of dollars for the profits that NOVARTIS and BIOSCRIP obtained as the result of Medicare and Medicaid reimbursements for Exjade.

The allegations of fraud stated in the Complaint were first brought to the attention of federal law enforcement by a whistle-blower who filed a lawsuit under the False Claims Act. The False Claims Act permits the Government to recover up to three times the amount of damages incurred by the United States, plus civil penalties ranging from $5,500 to $11,000 per violation. Private parties who have knowledge of fraud committed against the Government may file suit on behalf of the Government and share in any recovery. The United States may then intervene and file its own lawsuit for treble damages and penalties, as it did in this case.

Mr. Bharara praised the investigative work of the FBI’s Major Provider Response Team, HHS-OIG, and the Medicaid Fraud Control Units for New York, Washington, and Ohio. He also thanked the Commercial Litigation Branch of the U.S. Department of Justice’s Civil Division in Washington D.C., for its extraordinary assistance in this case.

The case is being handled by the Office’s Civil Frauds Unit. Mr. Bharara established the Civil Frauds Unit in March 2010 to bring renewed focus and additional resources to combating healthcare and other types of frauds. Assistant U.S. Attorneys Li Yu, Rebecca C. Martin, and Ellen M. London are in charge of the case.

U.S. v. Novartis & BioScrip Stipulation & Order of Settlement & Dismissal Re Bioscrip
U.S. v. Novartis Amended Complaint

Preet Bharara, the United States Attorney for the Southern District of New York, announced that SANDRA ALLEN, a former New York City public school teacher and tutor for TestQuest, Inc (“TestQuest”), an educational services company that provided tutoring services to public school children as part of a federally-funded program, pled guilty yesterday in Manhattan federal court for her role in a scheme to make it appear as if students had received after-school tutoring when, in fact, they had not, thereby enabling TestQuest to obtain federal funds to which it was not entitled. ALLEN pled guilty before U.S. District Judge Alvin K. Hellerstein.

Manhattan U.S. Attorney Preet Bharara said: “Sandra Allen, a former public school teacher, exploited a federally-funded tutoring program meant to help underperforming schools and their students. She falsified records and induced students to lie so that TestQuest could steal substantial sums of federal funding. She will now pay the price for her criminal conduct.”

According to the Information and Superseding Information filed against ALLEN and statements made in related court proceedings:

From 2008 through 2011, the New York City Department of Education (“NYCDOE”) received funds from the federal government to pay for New York City’s Supplemental Educational Services program (“SES”), which included after-school tutoring for students attending underperforming public schools. NYCDOE entered into contracts with private entities and organizations to provide SES tutoring to public school students. Students were eligible to receive SES tutoring if they met certain criteria, such as attending a school that had been identified as needing improvement or restructuring for at least two years. Private entities contracted by NYCDOE to provide SES tutoring were required to have each student who attended a class sign a standard attendance form. The tutor was also required to sign the form, attesting to the fact that he or she provided SES tutoring to those students. Further, as a condition of getting paid for providing tutoring, the private entities were required to certify to the NYCDOE that their attendance records were “true and accurate.”

From 2008 through 2011, TestQuest contracted with NYCDOE to provide SES tutoring. TestQuest provided tutoring at various New York City public schools, including the Monroe Academy of Business and Law/High School of World Cultures (“Monroe”) and the Global Enterprise Academy/Christopher Columbus High School (“Columbus”). TestQuest received millions of dollars in federal funding for tutoring during this time period, including hundreds of thousands of dollars for purported tutoring at Monroe and Columbus alone.

From the 2008/2009 academic year through the 2010/2011 academic year, while working as an SES tutor for TestQuest, ALLEN participated in a scheme to falsify daily attendance sheets to make it appear as if more students had attended TestQuest’s SES classes than had actually attended. ALLEN directed students who had not attended any after-school tutoring to sign daily attendance sheets falsely claiming that they had, in fact, received such tutoring. ALLEN also signed certifications on the attendance sheets, falsely certifying that she had provided after-school tutoring to the students whose names appeared on the attendance sheet when, in fact, she had not.

In addition, during the 2008/2009 academic year, ALLEN enlisted four students to participate in the scheme. Specifically, she directed the four students to find other students to sign daily attendance sheets for SES classes that they had not attended. ALLEN purchased food for the four student “helpers” to reward them for their assistance in the scheme.

ALLEN, 53, of New York, New York, pled guilty to one count of conspiracy to make false statements. She faces a maximum sentence of five years and is scheduled to be sentenced by U.S. District Judge Alvin K. Hellerstein on April 25, 2014 at 11:30 am. Civil charges that were previously filed against ALLEN for her role in the fraudulent billing scheme remain pending.

TestQuest previously agreed to pay the Government $1,725,000 in damages and penalties under the False Claims Act in connection with the billing scheme. TestQuest also agreed not to participate in any federal procurement or non-procurement transactions for a period of three years.

Mr. Bharara thanked the United States Department of Education’s Office of Inspector General for its extraordinary assistance in this case.

The criminal case is being handled by the Complex Frauds Unit, and Assistant U.S. Attorneys Joseph P. Facciponti and Christopher B. Harwood are in charge of the prosecution. The civil case is being handled by Christopher B. Harwood of the Office’s Civil Frauds Unit.

U.S. v. TestQuest et al. Amended Complaint

Preet Bharara, United States Attorney for the Southern District of New York, announced that KORDELL NESBITT pled guilty today to charges arising from his involvement in a conspiracy to distribute cocaine and marijuana. NESBITT, at the time an Immigration Enforcement Agent (“IEA”) with the Department of Homeland Security, Immigration and Customs Enforcement, arranged for the shipment of marijuana into the New York City area for distribution in the Bronx. NESBITT was charged in July 2013 and pled guilty today before U.S. District Court Judge Jesse M. Furman.

Manhattan U.S. Attorney Preet Bharara said: “Federal agents are supposed to uphold our nation’s laws, not break them. Kordell Nesbitt broke laws that he swore to enforce when he played an integral role in a cocaine and marijuana conspiracy. His successful prosecution underscores our commitment to holding accountable law enforcement officers who engage in unlawful activity.”

According to the Indictment to which NESBITT pled guilty, statements made during the plea proceeding, and other court documents:

Throughout his involvement in the conspiracy, NESBITT was an IEA with U.S. Immigration and Customs Enforcement (“ICE”). Among other duties, he was responsible for escorting detained aliens both within the United States and internationally to foreign countries. In this capacity, NESBITT was authorized to carry a firearm at all times, and was able to avoid screening measures at airports to which civilian travelers are typically subjected.

From at least May 2013, NESBITT sought to arrange for the shipment of cocaine and marijuana into the New York City area. Ultimately, NESBITT succeeded in coordinating the shipment of pound quantities of marijuana to an apartment in the Bronx. Once the package reached its destination, NESBITT personally coordinated sales of the narcotics within the packages using his cellular phone, sending drug customers to the apartment where a co-conspirator executed the sales. Charges against two alleged co-conspirators, Christopher Sinceno and Sherisse Thompson, remain pending.

NESBITT, 26, of the Bronx, New York, pled guilty to one count of engaging in a conspiracy to violate the narcotics laws of the United States, namely, to distribute controlled substances containing marijuana and cocaine. He faces a maximum sentence of five years in prison.

Mr. Bharara praised the investigative work of the Department of Homeland Security, Office of the Inspector General and the Immigration and Customs Enforcement Office of Professional Responsibility. He also thanked ICE’s Homeland Security Investigations for its assistance in the investigation.

The case is being prosecuted by the Office’s Public Corruption Unit. Assistant United States Attorney Martin S. Bell is in charge of the prosecution.

The charges against Thompson and Sinceno are merely accusations, and those defendants are presumed innocent unless and until proven guilty.

U.S. v. Kordell Nesbitt and Christopher Sinceno Indictment

U.S. v. JPMorgan Chase - Deferred Prosecution Agreement Packet

Charges to Be Deferred for Two Years Under an Agreement Requiring JPMorgan to Admit to Its Conduct; Pay $1.7 Billion to Victims of Madoff’s Fraud; and to Reform Its Anti-Money Laundering Policies

$1.7 Billion Payment by JPMorgan is the Largest Ever Bank Forfeiture and Department of Justice Penalty for a Bank Secrecy Act Violation

Preet Bharara, the United States Attorney for the Southern District of New York, and George Venizelos, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced criminal charges against JPMorgan Chase Bank, N.A. (“JPMorgan” or the “Bank”), consisting of two felony violations of the Bank Secrecy Act, in connection with the Bank’s relationship with Bernard L. Madoff Investment Securities (“Madoff Securities”). The case is assigned to United States District Judge Lewis A. Kaplan.

Also today, Mr. Bharara announced an agreement (the “Agreement”) with JPMorgan, under which the Bank agreed to accept responsibility for its conduct by stipulating to the accuracy of an extensive Statement of Facts; to pay a $1.7 billion penalty to the victims of the Madoff fraud through a parallel civil forfeiture complaint; to refrain from future criminal conduct and cooperate fully with the Government; and to continue reforms of its Bank Secrecy Act (“BSA”)/Anti-Money Laundering compliance program. The criminal charges are contained in a two-count felony Information (the “Information”). Assuming the Bank’s continued compliance with the Agreement, the Government has agreed to defer prosecution on the Information for a period of two years, after which time the Government will seek to dismiss the charges.

Manhattan U.S. Attorney Preet Bharara said: “Today, the largest financial institution in the country stands charged with two criminal offenses. Institutions, not just individuals, have an obligation to follow the law and to police themselves. They must exercise due care not only with their own money but with other people’s money also. In this case, JPMorgan connected the dots when it mattered to its own profit, but was not so diligent otherwise. Fortunately, with today’s resolution, the bank has accepted responsibility and agreed to continue reforming its anti-money laundering practices. Most importantly, the victims of Bernie Madoff’s epic fraud are $1.7 billion closer to being made whole.”

FBI Assistant Director-in-Charge George Venizelos said: “J.P. Morgan failed to carry out its legal obligations while Bernard Madoff built his massive house of cards. Today, J.P. Morgan finds itself criminally charged as a consequence. But it took until after the arrest of Madoff, one of the worst crooks this office has ever seen, for J.P. Morgan to alert authorities to what the world already knew. In order to avoid these types of disasters in the future – we all need to be invested in making our markets safer and more equitable. The FBI can’t do it alone. Traders, compliance officers, analysts, bankers, and executives are the gatekeepers of the financial industry. We need their help protecting our markets.”

In separate actions, the United States Department of the Treasury, Office of the Comptroller of the Currency (“OCC”), and the Financial Crimes Enforcement Network (“FinCEN”), announced that they had also reached agreements with JPMorgan.

According to the documents filed today in Manhattan federal court:

Since 1986, JPMorgan and its predecessor institutions served as the primary bank through which Madoff ran his Ponzi scheme. Madoff Securities maintained a series of linked checking and brokerage accounts at JPMorgan – collectively referred to as the “703 Account.” Madoff was a client of the Bank’s broker/dealer banking group, an investment bank group that comprised personnel from various business lines that serviced the needs of broker/dealer clients. JPMorgan designated a banker as Madoff’s “relationship manager,” who was principally responsible for Madoff’s business with the Bank, as well as for the Bank’s first-line BSA responsibilities, including certifying that the Madoff relationship “complies with relevant legal and regulatory-based policies,” and “that the necessary due diligence has been performed.”

Early on in its relationship with Madoff Securities, JPMorgan, because of its unique vantage point as the firm’s banker, had reason to be suspicious about Madoff. For example, in the early 1990s the Bank learned that Madoff and a prominent client of JPMorgan’s Private Bank (the “Private Bank Client”) were engaged in what looked like round-tripping, check-kiting transactions. Another bank involved in these transactions (“Madoff Bank 2”) recognized them as suspicious and without any legitimate business purpose. In or about 1996, unlike JPMorgan, Madoff Bank 2 not only filed a suspicious activity report (“SAR”) with law enforcement, but it actually closed down Madoff’s account. As a result, Madoff moved all of his accounts from Madoff Bank 2 to JPMorgan, where the size of these transactions became much larger. For example, in December 2001 alone, the Private Bank Client engaged in approximately $6.8 billion worth of transactions with Madoff through a series of circular $90 million transfers.

Over the years, other parts of the Bank developed their own suspicions about Madoff. In 2006, an entirely different part of the Bank – a derivatives trading desk located in the London branch of JPMorgan’s Investment Bank – became interested in Madoff. The trading desk began receiving requests to issue derivatives tied to the performance of various Madoff “feeder” funds – funds that sent investor money to Madoff Securities. In order to hedge and offset the risk created by these products, JPMorgan invested the Bank’s own capital directly in the feeder funds. The Bank initially issued about $100 million of Madoff-linked products in 2006 and early 2007. Then, because of continued demand for these products, in the summer of 2007, the traders on the London desk sought to write more than $1 billion in Madoff-linked derivatives – a large deviation from normal risk limits, which therefore had to be approved by the Investment Bank’s Chief Risk Officer. In June 2007, the Chief Risk Officer convened a committee to consider authorizing a request for more than $1.3 billion of the Bank’s proprietary capital to be invested directly into Madoff feeder funds to hedge the issuance of additional derivative products tied to the performance of Madoff feeder funds. Ultimately, the Chief Risk Officer – who at one point was told by a senior colleague that there is a “well-known cloud over the head of Madoff and that his returns are speculated to be part of a Ponzi scheme” – rejected the proposal and set the Madoff risk limit at $250 million.

Over the next several months, JPMorgan began to have increasing concerns about its exposure to Madoff. In late 2007, the London trading desk hired its own due diligence staff; on the first day of his job, the newly-hired head of hedge fund due diligence was directed to review the Madoff feeder fund positions and offer any insight into how Madoff was able to generate his purported returns. Ultimately, in October 2008, the London desk’s due diligence team circulated a negative memorandum describing continuing concerns about Madoff. Among other things, the memorandum described the inability of JPMorgan to validate Madoff’s trading activity or custody of assets, questioned Madoff’s “odd choice” of a one-man accounting firm, and generally made the point that JPMorgan “seem[ed] to be relying on Madoff’s integrity” with little reason to do so.

About two weeks after the circulation of this memorandum, on October 29, 2008, JPMorgan filed a report with regulators in the United Kingdom, listing Madoff Securities as the “main subject – suspect” and repeating many of the concerns from that earlier memo. The report to the UK regulators concluded that Madoff’s returns were “probably” “too good to be true,” and “as a result,” JPMorgan was withdrawing about $300 million of its own money from the Madoff feeder funds. On November 19, 2008, the Bank filed a second report, notifying U.K. regulators about an additional planned transaction involving its position in the feeder funds, lest JPMorgan “be considered party to laundering the proceeds of crime.” As part of a broader directive to reduce generally the Bank’s exposure to hedge funds, between October 2008 and Madoff’s arrest on December 11, JPMorgan redeemed approximately $288 million of its approximately $370 million position in the Madoff feeder funds.

Although JPMorgan filed a report with UK regulators about its concerns relating to Madoff, it failed to do so in the United States. While the suspicions raised by the UK bankers led to JPMorgan’s own redemptions from Madoff feeder funds, during the same time, U.S.-based anti-money laundering compliance officers at JPMorgan never looked into Madoff, and nor was the relationship sponsor alerted about the London desk’s concerns. And while certain senior compliance officers in the United States were provided with all of the relevant facts – critically, the London traders’ suspicions about Madoff and the fact of the decades-long banking relationship with Madoff – the U.S. compliance officers did very little to investigate those suspicions, failed to raise these concerns with the bank’s anti-money laundering department, and failed to file a SAR.

Meanwhile, the balance in the 703 Account that held the billions Madoff stole from his customers was being drained. In August 2008, the account held approximately $5.6 billion. But by October 16, 2008 – the date of the negative memorandum described above – the balance had fallen to $3.7 billion. And on October 29, when the Bank filed its report in the U.K., the balance had fallen another $700 million, to about $3 billion. Over the next five weeks before Madoff’s arrest, a little over $2 billion exited the 703 Account. By the time Madoff was arrested on December 11, 2008, only about $234 million remained in the 703 Account. Of those lost billions, the vast majority went to the very funds in which JPMorgan had built a position, including about $288 million that went back to JPMorgan itself to pay for its redemptions from the feeder funds.

As a result of the foregoing conduct, this Office has entered into a Deferred Prosecution Agreement with JPMorgan, which has been submitted today to Judge Kaplan. Pursuant to the Agreement, the Bank has agreed to the following terms and conditions. First, JPMorgan has agreed to waive indictment and to the filing of the Information, charging the Bank with violations of the Bank Secrecy Act. Count One of the Information charges that JPMorgan failed to maintain an effective anti-money laundering program in 2008, as required under the BSA. Specifically, Count One alleges that JPMorgan failed to enact adequate policies, procedures, and controls to ensure that information about the Bank’s clients obtained through other lines of business – or outside the United States – was shared with compliance and AML personnel. Count Two of the Information alleges that JPMorgan violated the BSA by failing to file a Suspicious Activity Report on Madoff Securities in October 2008.

Second, pursuant to the Agreement, JPMorgan agrees to acknowledge responsibility for its conduct by, among other things, stipulating to the accuracy of a detailed Statement of Facts.

Third, JPMorgan agrees to pay a non-tax deductible penalty of $1.7 billion, in the form of a civil forfeiture, which the Government intends to distribute to the victims of the Madoff fraud, consistent with the applicable Department of Justice regulations, through the ongoing remission process. To effectuate that forfeiture, the Office has today filed a parallel civil forfeiture complaint, which has been assigned to United States District Judge Andrew L. Carter, Jr. The $1.7 billion penalty represents the largest ever financial penalty imposed by the Department of Justice for a violation of the Bank Secrecy Act, and the largest forfeiture from a bank. Information about the remission process, including instructions for filing a claim, can be found on its website at www.madoffvictimfund.com.

Fourth, JPMorgan agrees to various cooperation obligations, including (1) cooperation in connection with this Office’s ongoing investigation of the fraud at Madoff Securities; (2) an obligation to report any criminal conduct by any employee acting within the scope of his employment at JPMorgan; (3) reporting to this Office any BSA-related investigation or proceeding in which JPMorgan is involved; and (4) committing no subsequent federal crimes.

Fifth, JPMorgan agrees to continue reforming its Bank Secrecy Act/Anti-Money Laundering compliance programs and procedures, consistent with a pair of consent orders previously entered by the Bank’s principal regulators, and to provide quarterly reports and other information to this Office about its progress.

In consideration of these obligations, the Government has agreed to defer prosecution on the Information for a period of two years, after which time – assuming that the Bank does not violate the Agreement – the Government will seek to dismiss the charges.

Mr. Bharara praised the work of the FBI. He also thanked the OCC and FinCEN.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.StopFraud.gov.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Arlo Devlin-Brown and Matthew L. Schwartz are in charge of the prosecution.

U.S. v. JPMorgan Chase - Deferred Prosecution Agreement Packet

Preet Bharara, United States Attorney for the Southern District of New York, and George Venizelos, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation ("FBI"), announced today that a grand jury sitting in White Plains has returned a two-count Indictment charging GREGG PIERLEONI with mail fraud and wire fraud.

The Indictment alleges that PIERLEONI embezzled more than $5.7 million over a period of more than six years from a Westchester-based moving and storage company where he had served as the Chief Financial Officer from 1987 to April 2013.

Manhattan U.S. Attorney Preet Bharara stated: "As alleged, PIERLEONI abused the trust placed in him by his employer to steal a substantial amount of money so that he could enjoy a lavish lifestyle. He now faces having to pay the real price for that lifestyle."

Assistant FBI Director George Venizelos stated: “As alleged in the Indictment, motivated by personal greed, PIERLEONI stole millions of dollars from his long-time employer. He lived beyond his means while repeatedly betraying his company’s trust. The FBI will continue to investigate and hold accountable individuals who steal and line their pockets with their victim’s hard-earned money.”

According to allegations in the Indictment unsealed earlier today:

PIERLEONI moved funds from the moving company's operating account to other accounts held by the moving company and a related entity. He then wrote checks from those other accounts to pay his personal American Express bills. PIERLEONI used the funds he embezzled to pay for collectible items, sports memorabilia, airline tickets and other travel expenses, artwork, tickets to sporting events and meals in restaurants.

PIERLEONI, 59, of New Fairfield, CT, faces upon conviction maximum sentences of 20 years' imprisonment on the mail fraud count and 20 years' imprisonment on the wire fraud count.

Mr. Bharara praised the investigative work of the FBI.

This prosecution is being handled by the Office's White Plains Division. Assistant U.S. Attorney James McMahon is in charge of the prosecution.

The charges contained in the Indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.

U.S. v. Gregg Pierleoni Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, announced today the settlement of a lawsuit against HARRISON FUNERAL HOME, INC. (“HARRISON”), a funeral home in Westchester County, New York, and its President JOHN BALSAMO (“BALSAMO”) for engaging in unfair and deceptive acts or practices in connection with the provision of funeral services. The settlement, in the form of a consent decree, was based on a Complaint filed in May 2012 in White Plains federal court and approved today by U.S. District Judge Nelson Stephen Román.

Manhattan U.S. Attorney Preet Bharara said: “As part of today’s settlement, Harrison Funeral Home admitted that it violated a federal rule designed to ensure that people receive fair pricing information from funeral providers. As this suit and settlement demonstrate, we will continue to use our statutory powers to act against unscrupulous businesses that take advantage of consumers in their most vulnerable moments.”

According to the Complaint filed in White Plains federal court:

The Federal Trade Commission (“FTC”) promulgated what is known as the Funeral Rule to ensure that people inquiring about funeral arrangements receive full and fair pricing information and are not taken advantage of by funeral providers through inflated prices, overcharges, double charges, or unnecessary services. The law requires that information about prices be disclosed to persons inquiring about funeral arrangements and that they be given written price lists and statements of the funeral goods they selected to purchase.

The Complaint alleges that HARRISON committed violations of the Funeral Rule by failing to provide the required price lists to persons inquiring about funeral services on four separate occasions. Although HARRISON and BALSAMO were advised of their violations of the Funeral Rule and given the option of enrolling in a voluntary program aimed at preventing future violations, HARRISON and BALSAMO failed to enroll their employees in the program’s required trainings and continued to violate the Funeral Rule.

In the consent decree, HARRISON and BALSAMO admit that they violated the Funeral Rule. The consent decree permanently enjoins HARRISON and BALSAMO from violating the Funeral Rule in the future, requires defendants to submit compliance notices to the FTC for the next twenty years, and requires defendants to maintain certain records and to submit to compliance reviews. In addition, HARRISON and BALSAMO will pay a $32,000 civil penalty to the United States.

The case is being handled by the Office’s Civil Division. Assistant U.S. Attorneys Natalie N. Kuehler and Ellen Blain are in charge of the case.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that INGRID LEDERHAAS-OKUN, a former Vice President of Product Development at a high-end jewelry company, was sentenced today in Manhattan federal court to one year and one day in prison for stealing over $2.1 million worth of jewelry from her former employer. LEDERHAAS-OKUN pled guilty on July 26, 2013 and was sentenced today by U.S. District Judge Paul G. Gardephe.

Manhattan U.S. Attorney Preet Bharara said: “With today’s sentence, Ingrid Lederhaas-Okun has learned the price she must pay for stealing millions of dollars worth of fine jewelry from her employer – loss of her liberty and forfeiture of her ill-gotten gains.”

According to the charging instruments in this case, as well as statements made in other public filings and in related court proceedings:

From at least 2008 until February 2013, LEDERHAAS-OKUN worked as a Vice President of Product Development at the midtown Manhattan headquarters of one of the world’s premier high-end jewelers (the “Jewelry Company”). Her duties and responsibilities included ensuring that product designs could be manufactured and, to that end, she had authority to check out jewelry belonging to the Jewelry Company for work-related reasons, for example, to provide the jewelry to potential manufacturers to determine the cost of production.

Between November 2012 and February 2013, LEDERHAAS-OKUN abused her position and authority at the Jewelry Company to check out over 165 pieces of jewelry with a retail value of over $1.2 million, including numerous diamond bracelets, platinum or gold diamond drop and hoop earrings, platinum diamond rings, and platinum and diamond pendants. She then sold some if not all of this jewelry for $1.3 million to another company, a leading international buyer and reseller of jewelry with an office in midtown Manhattan (the “Jewelry Reseller”). The Jewelry Reseller paid for the merchandise that LEDERHAAS-OKUN had stolen either by paying her or her relative, in transactions arranged either by LEDERHAAS-OKUN or a friend working on her behalf. In total, LEDERHAAS-OKUN admitted to stealing over $2 million worth of jewelry in this manner.

To conceal her theft, LEDERHAAS-OKUN repeatedly made false statements to the Jewelry Company. For example, after her termination in February 2013, she told the Jewelry Company representatives that she had only recently checked out the missing jewelry in anticipation of creating a PowerPoint presentation for her supervisor, and that a draft of the presentation could be found on her office computer. However, the missing jewelry had been checked out months earlier, her supervisor was unaware of any such presentation being worked on by LEDERHAAS-OKUN, and there was no draft presentation on her computer. In addition, LEDERHAAS-OKUN claimed the jewelry in question could be found in a white envelope in her office, but a search of her office shortly after her departure did not yield any such envelope.

In addition to the prison term, LEDERHAAS-OKUN, 47, of Darien, Connecticut, was also sentenced to one year of supervised release. She was also ordered to forfeit $2,114,873 and to pay $2,239,873 in restitution.

Mr. Bharara praised the investigative work of the Federal Bureau of Investigation.

This case is being handled by the Office’s Complex Frauds Unit. Assistant U.S. Attorney Rosemary Nidiry is in charge of the prosecution and Assistant U.S. Attorney Alexander Wilson is in charge of the forfeiture aspects of the case.

Preet Bharara, the United States Attorney for the Southern District of New York, George Venizelos, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), Brian R. Crowell, the Special-Agent-in-Charge of the New York Field Division of the Drug Enforcement Administration (“DEA”), and Toni Weirauch, the Special Agent-in-Charge of the New York Field Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced today the unsealing of an indictment against ANDREW MICHAEL JONES, a/k/a “Inigo,” GARY DAVIS, a/k/a “Libertas,” and PETER PHILLIP NASH, a/k/a “Samesamebutdifferent,” a/k/a “Batman73,” a/k/a “Symmetry,” a/k/a “Anonymousasshit,” in connection with their alleged roles in operating “Silk Road,” a hidden website designed to enable its users to buy and sell illegal drugs and other unlawful goods and services anonymously and beyond the reach of law enforcement. JONES was arrested in Charles City, Virginia, on December 19, 2013, and was presented in Richmond, Virginia in the United States District Court for the Eastern District of Virginia today. DAVIS is believed to be in Ireland. NASH was arrested in Australia on December 20, 2013, by the Australian Federal Police in Brisbane, Australia. All three individuals are alleged to have conspired to run the Silk Road website with Ross William Ulbricht, a/k/a “Dread Pirate Roberts,” a/k/a “DPR,” a/k/a “Silk Road,” the alleged owner and operator of Silk Road, who was previously arrested in San Francisco, California, on October 1, 2013, pursuant to a Complaint filed in Manhattan federal court.

According to the allegations in the Indictment unsealed today in Manhattan federal court, and the Complaint previously filed against Ulbricht:

From about January 2011until October 2, 2013, the “Silk Road” website hosted a sprawling black-market bazaar on the internet, where illegal drugs and other illicit goods and services were regularly bought and sold by the site’s users. During its more than two-and-a-half years in operation, Silk Road was used by several thousand drug dealers and other unlawful vendors to distribute hundreds of kilograms of illegal drugs and other illicit goods and services to well over a hundred thousand buyers, and to launder hundreds of millions of dollars deriving from these unlawful transactions.

Ulbricht, the owner and operator of Silk Road, ran the website with the assistance of a small support staff, including both site administrators and forum moderators. The site administrators were responsible for, among other things, monitoring user activity on Silk Road for problems, responding to customer service inquiries, and resolving disputes between buyers and vendors. The forum moderators were responsible for, among other things, monitoring user activity on discussion forums associated with the site, providing guidance to forum users concerning how to conduct business on Silk Road, and reporting any significant problems discussed on the forums to the site administrators and to Ulbricht. Ulbricht paid the site administrators and forum moderators salaries ranging from approximately $50,000 to approximately $75,000 per year for their services.

JONES and DAVIS worked as site administrators on Silk Road. NASH worked as the primary moderator on the Silk Road discussion forums. JONES, DAVIS, and NASH were each paid salaries by Ulbricht for their roles in connection with Silk Road.

JONES, 24, of Charles City, Virginia, DAVIS, 25, of Wicklow, Ireland, and NASH, 40, of Brisbane, Australia, are each charged with one count of narcotics conspiracy, which carries a maximum sentence of life in prison and a mandatory minimum sentence of 10 years in prison; one count of conspiracy to commit computer hacking, which carries a maximum sentence of five years in prison; and one count of money laundering conspiracy, which carries a maximum sentence of 20 years in prison.

Mr. Bharara praised the outstanding investigative work of the FBI and its New York Special Operations and Cyber Division, as well as the outstanding investigative work of the DEA’s New York Organized Crime Drug Enforcement Strike Force, which comprises agents and officers of the DEA, the IRS, the New York City Police Department, U.S. Immigration and Customs Enforcement’s (“ICE”) Homeland Security Investigations (“HSI”), the New York State Police, the Bureau of Alcohol, Tobacco, Firearms and Explosives, the U.S. Secret Service, the U.S. Marshals Service, Office of Foreign Assets Control, and NY Department of Taxation. Mr. Bharara also thanked the ICE-HSI Chicago-O’Hare office for its assistance and support, as well as the Department of Justice’s Computer Crime and Intellectual Property Section and Office of International Affairs. Additionally, Mr. Bharara praised the foreign law enforcement partners whose contributions to the success of the investigation and prosecution have been invaluable, namely, the Australian Federal Police, the Irish Republic’s Computer Crime Investigation Unit of the An Garda Siochana, the Reykjavik Metropolitan Police of the Republic of Iceland, and the French Republic’s Central Office for the Fight Against Crime Linked to Information Technology and Communication.

Mr. Bharara also noted that the investigation remains ongoing.

The prosecution of this case is being handled by the Office’s Complex Frauds Unit. Assistant United States Attorney Serrin Turner is in charge of the prosecution, and Assistant United States Attorney Christine Magdo is in charge of the forfeiture aspects of the case.

The charges contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

U.S. v. Andrew Jones, et al. (Silk Road) Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that JOSEPH RUTIGLIANO, a former LIRR conductor and president of a union local, was sentenced today in Manhattan federal court to eight years in prison for his role in the massive fraud scheme in which Long Island Railroad (“LIRR”) workers claimed to be disabled upon early retirement so that they could receive disability benefits to which they were not entitled. Between approximately 1999 and 2011, RUTIGLIANO completed fraudulent disability applications on behalf of at least 268 LIRR clients and received over $400,000 in federal disability benefits based upon his own fraudulent disability application. Following a three-week jury trial, RUTIGLIANO was convicted on August 6, 2013, on all counts with which he was charged, including two counts of conspiracy to commit mail fraud, wire fraud and health care fraud; two counts of conspiracy to defraud the Railroad Retirement Board (“RRB”); three counts of mail fraud; three counts of wire fraud; and one count of making a false statement.

Manhattan U.S. Attorney Preet Bharara said: “Joseph Rutigliano not only defrauded the government out of more than $400,000 in unentitled benefits by fabricating his own disabilities, he helped hundreds of other LIRR employees bilk the disability benefit system out of more than $80 million. He will now pay for his crimes with a lengthy term in federal prison and by having to repay the money he defrauded.”

According to the Complaint, the Superseding Indictments, the evidence at trial, and statements made in court:

The RRB is an independent U.S. agency that administers benefit programs, including disability benefits, for the nation’s railroad workers and their families. A unique LIRR contract allowed employees to retire at the relatively young age of 50 (which has since changed to 55) if they had been employed by the LIRR for at least 20 years. Eligible employees are entitled to receive an LIRR pension, which is a portion of the full retirement payment for which they are eligible at 65. In addition, at full retirement age (between age 60 and age 65 depending on years of service), they are eligible to receive an RRB retirement pension. For LIRR workers who retired at 50 with only an LIRR pension, they would receive less than their prior salary and substantially lower pension payments than those to which they would be entitled at full retirement age. However, LIRR employees who retired and claimed disability could receive a disability payment from the RRB on top of their LIRR pension, regardless of age. A retiree’s LIRR pension, in combination with RRB disability payments, can be roughly equivalent to the base salary earned during his or her career.

Hundreds of LIRR employees have allegedly exploited the overlap between the LIRR pension and the RRB disability program by pre-planning the date on which they would falsely declare themselves disabled so that it would coincide with their projected retirement date. These false statements, made under penalty of prosecution in disability applications, allowed LIRR employees to retire as early as age 50 with an LIRR pension, supplemented by the fraudulently obtained RRB disability annuity. From 1995 through 2011, more than 75% of LIRR employees stopped working and began receiving RRB disability benefits, whereas during this same period, only 25% of retiring Metro-North employees stopped working and began receiving RRB disability benefits.

RUTIGLIANO is a former LIRR conductor and president of a union local who received fraudulent disability benefits in the scheme, and who was instrumental in helping other LIRR employees receive disability benefits to which they were not entitled. Between approximately 1999 and 2011, RUTIGLIANO received $409,498 in disability benefits based on a fraudulent disability application in which RUTIGLIANO claimed to suffer from disabilities that made it hard for him to sit, stand, walk, dress himself, bathe himself, or hold a pen for any length of time. At the same time, the evidence showed that in the years RUTIGLIANO collected those benefits, he played hundreds of hours of year-round golf in New York and Florida, and engaged in other physical activities. RUTIGLIANO obtained the fraudulent disability benefits with the help of his co-defendant, the disability doctor Peter J. Lesniewski, who was also convicted at trial, and who provided RUTIGLIANO with false documentation reflecting fabricated physical conditions that purportedly made it impossible for RUTIGLIANO to perform the duties of a train conductor, including walking on trains and collecting tickets from passengers.

In addition to obtaining fraudulent benefits, RUTIGLIANO helped at least 268 other LIRR employees obtain disability benefits to which they were not entitled. In exchange for receiving payments of up to $1,000 per employee, RUTIGLIANO completed fraudulent disability applications on the employees’ behalf, fabricating claims of serious physical suffering and declining health, and grossly exaggerating the physical demands of the employees’ jobs. As a result of this fraud, RUTIGLIANO’s LIRR customers have received over $80 million in RRB disability benefit payments, and the intended losses from his fraud amount to over $102 million.

In addition to his prison term, RUTIGLIANO, 66, of Holtsville, New York, was also sentenced to three years of supervised release. He was also ordered to pay $82,356,348 in restitution, to forfeit $82,883,348, and to pay an $1100 special assessment.

Thirty-three people have been charged in connection with the LIRR disability fraud scheme, 28 of whom have pled guilty, and five of whom were convicted after trial.

Mr. Bharara praised the RRB-OIG, the FBI, and the MTA-OIG for their outstanding work in the investigation, which he noted is ongoing. He also acknowledged the previous investigation conducted by the New York State Attorney General’s Office into these pension fraud issues.

The Office’s Complex Frauds Unit is handling the case. Assistant U.S. Attorneys Justin Weddle, Daniel Tehrani, and Nicole Friedlander are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, and James T. Hayes, Jr., the Special Agent-in-Charge of the New York Office of the United States Department of Homeland Security (“DHS”), Homeland Security Investigations (“HSI”), announced today the arrest of RICKY PATRICK HESTER for possession and distribution of child pornography. HESTER, a cadet at the United States Military Academy at West Point, was arrested by HSI agents today on the West Point campus and presented in White Plains federal court before United States Magistrate Judge Lisa Margaret Smith.

Manhattan U.S. Attorney Preet Bharara stated: “As alleged, Ricky Patrick Hester possessed and distributed illegal child pornography, a crime that victimizes the most vulnerable members of our society. Thanks to the efforts of Homeland Security Investigations, Hester’s alleged illicit conduct was brought to light, and he will now have to answer to these serious charges.”

HSI Special Agent-in-Charge James T. Hayes, Jr. stated: "Few crimes are more damaging and disturbing than the willful possession and distribution of explicit sexual images of children. This is not a victimless crime and HSI will work tirelessly to target and arrest those who enable exploitation by purchasing child pornography."

According to the allegations in the criminal Complaint filed today in White Plains federal court:

From at least as early as February 2013, and up to on or about September 29, 2013, on a number of occasions, HESTER possessed and distributed images and videos containing child pornography. According to the Complaint, during their investigation, DHS agents learned that HESTER used an email account to exchange numerous videos with other internet users that contained what appeared to be minor children engaging in sexually explicit conduct. When HESTER was questioned in his barracks yesterday, he admitted that he sent and received numerous images and videos containing child pornography using a private email account.

HESTER, 23, of Granger, Indiana, is charged with one count of receiving or distributing child pornography, which carries a mandatory minimum sentence of five years in prison and a maximum sentence of 20 years in prison, and one count of possessing child pornography, which carries a maximum sentence of 10 years in prison. Both counts also carry a maximum fine of $250,000 or twice the gross gain or loss from the offense.

Mr. Bharara praised the outstanding investigative work of the Department of Homeland Security. He also thanked the Army Criminal Investigation Command for their assistance in the investigation. He added that the investigation is continuing.

HSI encourages the public to report suspected child predators and any suspicious activity through its toll-free hotline at 1-866-DHS-2ICE. Investigators staff this hotline around the clock. Suspected child sexual exploitation or missing children may also be reported to the National Center for Missing and Exploited Children, an Operation Predator partner, at 1-800-843-5678 or http://www.cybertipline.com

The prosecution is being overseen by the Office’s White Plains Unit. Assistant United States Attorney Daniel P. Filor is in charge of the prosecution.

The charges contained in the Complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.

Preet Bharara, the United States Attorney for the Southern District of New York, today announced that STEPHEN COLANGELO, Jr., pled guilty to two counts of securities fraud and two counts of wire fraud in connection with two separate schemes that defrauded investors out of more than $2.7 million. COLANGELO’s first scheme involved a hedge fund he controlled called the Brickell Fund, LLC (the “Brickell Fund”), and his second scheme involved three companies he created and controlled called “Hedge Community,” “Start A Hedge Fund,” and “Under the Radar SEO” (collectively, the “Business Ventures”). COLANGELO misled investors in the course of both of these schemes by making numerous misrepresentations, which included issuing fraudulent performance statements, private placement memoranda, and other business documents. COLANGELO pled guilty in Manhattan federal court before U.S. Magistrate Judge James Cott.

Manhattan U.S. Attorney Preet Bharara said: “Investors deserve fair and honest services from their money managers. Stephen Colangelo, Jr. and others like him who fraudulently pocket investor money undermine confidence in the markets.”

According to the Indictment and related court proceedings:

From March 2009 to February 2011, COLANGELO represented that he was an investment manager and solicited funds from private investors for the Brickell Fund, a purported hedge fund he operated. In the course of soliciting funds from investors, COLANGELO made numerous misrepresentations. Specifically, he told potential investors that his compensation for managing their investments in the Brickell Fund would be a nominal management fee and a certain percentage of trading profits, thus ensuring his compensation would be dependent on his trading success. In reality, COLANGELO regularly misappropriated large amounts of investor money for his own personal benefit and to support unrelated business ventures. He also regularly made false claims to investors about investment strategy and alleged profits. Based on these and other fraudulent statements and misrepresentations, COLANGELO defrauded investors out of more than $1.6 million in connection with the Brickell Fund.

From August 2009 to October 2011, COLANGELO also solicited investments in the Business Ventures. In doing so, COLANGELO represented that investment money would be used for legitimate business expenses, when in reality, he misappropriated a large amount of the investments for his own personal benefit. COLANGELO defrauded investors of well over $1.1 million in connection with the Business Ventures.

COLANGELO, 46, pled guilty to two counts of securities fraud and two counts of wire fraud. The securities fraud and wire fraud charges each carry a maximum term of 20 years in prison. The sentencing before U.S. District Judge Robert W. Sweet is scheduled for April 3, 2014 at 4:30 p.m.

Mr. Bharara praised the investigative work of the Federal Bureau of Investigation and also thanked the Securities and Exchange Commission for its assistance.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive,

coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20

federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition

of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases

against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For

more information on the task force, please visit www.StopFraud.gov.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Steve Lee is in charge of the prosecution.

US v. Melvin Lowe Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, announced that DAVID J. WEISHAUS, a former stock broker at a securities trading firm (“Securities Trading Firm-1”), pled guilty today in Manhattan federal court to charges arising from his involvement in an insider trading scheme. The alleged scheme involved the misappropriation of material, non-public information (“Inside Information”) concerning IBM’s acquisition of a software company, SPSS, Inc., in 2009. WEISHAUS was charged in November 2012, and pled guilty today before U.S. District Judge Andrew L. Carter, Jr., pursuant to a cooperation agreement.

According to the Indictment to which WEISHAUS pled guilty, statements made during the plea proceeding, and other court documents:

The Inside Information concerning IBM’s acquisition of SPSS originated from a corporate lawyer who was part of the legal team that represented IBM in the transaction (“Attorney-1”) in 2009. On May 31, 2009, Attorney-1 shared Inside Information concerning the transaction, including the names of the parties and the fact that IBM was going to acquire SPSS for a significant premium over its market price, with his close friend, Trent Martin, a former research analyst at an international financial services firm. The information was shared in confidence and, based on their longstanding history of sharing confidences, Attorney-1 expected that Martin would not share the information or use it to trade.

However, in June and July 2009, Martin bought SPSS common stock and call option contracts based on the Inside Information he was given by Attorney-1 and, in turn, shared the tip with his roommate, Thomas Conradt, who worked as a stock broker at Securities Trading Firm-1. In June and July 2009, Conradt bought SPSS common stock and tipped WEISHAUS, his co-worker at Securities Trading Firm-1, who also bought SPSS common stock and call options. Conradt also tipped his co-workers at Securities Trading Firm-1 (“CC-1 and CC-2”), who then bought SPSS call option contracts. When IBM announced its acquisition of SPSS on July 28, 2009, the share price of SPSS common stock rose by 41% in one day. Thereafter, Martin, Conradt, WEISHAUS, CC-1, and CC-2 sold their SPSS positions, yielding total profits of approximately $1 million.

WEISHAUS, 33, of New York, New York, pled guilty to one count of conspiracy to commit securities fraud and one count of securities fraud. The conspiracy count carries a maximum sentence of five years in prison and a fine of $250,000, or twice the gross gain or loss from the offense. The securities fraud count carries a maximum sentence of 20 years in prison and a maximum fine of $5 million. As part of his plea agreement, WEISHAUS agreed to forfeit his share of the proceeds obtained from the offense. He is scheduled to be sentenced by Judge Carter on April 25, 2014, at 3:15 p.m.

Mr. Bharara praised the investigative work of the Federal Bureau of Investigation. He also thanked the U.S. Securities and Exchange Commission. Mr. Bharara noted that the investigation is continuing.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive,

coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20

federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition

of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases

against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For

more information on the task force, please visit www.StopFraud.gov.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys John T. Zach and Telemachus P. Kasulis are in charge of the prosecution.

U.S. v. Thomas C. Conradt and David J. Weishaus Indictment 12 Cr 887

Preet Bharara, the United States Attorney for the Southern District of New York, announced that wine dealer RUDY KURNIAWAN was found guilty today by a jury in Manhattan federal court for engaging in a scheme to manufacture and sell counterfeit bottles of purportedly rare and expensive wine for millions of dollars. KURNIAWAN was also convicted of a scheme to fraudulently obtain a $3 million loan from a financing company. He was convicted following a one-week jury trial before U.S. District Judge Richard Berman.

Manhattan U.S. Attorney Preet Bharara said: “Rudy Kurniawan perpetrated a vintage fraud scheme, not only peddling counterfeit wine, but concocting, bottling, and labeling what he foisted on his victims. As the jury found in its verdict today, Kurniawan was also the author of a fictional tale that enabled him to defraud a lender out of $3 million. He now stands to pay for his fraud with time behind bars in a federal prison.”

According to evidence at trial and documents previously filed in Manhattan federal court:

KURNIAWAN has been a collector of fine and rare wines, and rose to become one of the most prominent and prolific dealers in the United States of purportedly rare and expensive wine. From 2004 through 2012, he engaged in a systematic scheme to defraud wine collectors and others by selling and attempting to sell numerous counterfeit bottles of purportedly rare and expensive wine. KURNIAWAN manufactured counterfeit bottles of rare and vintage wine at his home in Aracadia, California, operating what was, in effect, a counterfeit wine laboratory. KURNIAWAN mixed and blended lower-priced wines so that they would mimic the taste and character of rare and far more expensive wines; poured his creations into empty bottles of rare and expensive wines that he procured from various sources; and created a finished product by sealing the bottles with corks and outfitting the bottles with counterfeit wine labels he created. KURNIAWAN then sold and attempted to sell these counterfeit bottles of wine at auctions and in direct sales to wealthy wine collectors. KURNIAWAN earned millions of dollars through the sale of these counterfeit bottles of wine.

The Scheme to Defraud a Lender

KURNIAWAN also devised and carried out a scheme to fraudulently obtain a $3 million loan from a financing company located in New York City that specialized in extending loans that are secured by valuable collectibles, such as art and wine. KURNIAWAN obtained the loan by providing false information to, and concealing material information from, the financing company, including falsely omitting approximately $7.4 million in outstanding loans, falsely representing his annual expenses, and falsely representing that he was a permanent resident of the United States when he had no legal immigration status in the United States and had, in fact, been ordered by an immigration court to leave the country years earlier.

KURNIAWAN, 37, of Arcadia, California, was convicted of one count of mail fraud, which carries a maximum sentence of 20 years in prison, and one count of wire fraud, which also carries a maximum sentence of 20 years in prison.

Mr. Bharara praised the outstanding work of the FBI’s Art Crime Team and its New York and Los Angeles field offices.

This case is being handled by the Office’s Complex Frauds Unit. Assistant U.S. Attorneys Jason P. Hernandez and Joseph Facciponti are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that ODED ORBACH, a U.S. citizen, was sentenced today in Manhattan federal court to 25 years in prison for conspiring to provide material support to the Taliban and conspiring to acquire anti-aircraft missiles. The case arose out of a DEA undercover operation in which ORBACH and a co-defendant, Alwar Pouryan, also a U.S. citizen, agreed to provide various military-grade weapons, including heat-seeking surface-to-air missiles, to an individual they believed to represent the Taliban. ORBACH and Pouryan were convicted on April 19, 2013, after a two-week bench trial before U.S. District Judge Naomi Reice Buchwald. On September 25, 2013, Pouryan was sentenced to 25 years in prison by Judge Buchwald, who also imposed today’s sentence.

Manhattan U.S. Attorney Preet Bharara stated: “Today’s sentence ensures that Oded Orbach will be held to account for agreeing to provide over $25 million in military-grade weapons, including heat-seeking surface-to-air-missiles, to a source he believed represented the Taliban, and even though he knew the weapons would be used against the U.S. This Office stands ready to pursue and prosecute those who would provide support to terrorist organizations that target our country.”

According to evidence at trial and documents previously filed in Manhattan federal court:

Beginning in the fall of 2010, and continuing through their arrest in February 2011, the defendants communicated with a confidential source (the “CS”) working with the DEA who purported to represent the Taliban. The communications occurred during audio-recorded and videotaped meetings in Ghana, Ukraine, and Romania, as well as by telephone and email. During these communications, ORBACH and Pouryan agreed to arrange the sale of weapons to the CS for the Taliban’s use against U.S. military forces in Afghanistan. At the meetings, Pouryan and ORBACH, at different times, discussed weapons specifications, pricing, and the provision of training for the various weapons, including “Stinger” surface-to-air missiles, anti-tank missiles, grenade launchers, and M-16 assault rifles. ORBACH and Pouryan were informed that the surface-to-air missiles, in particular, were needed to protect Taliban heroin laboratories against attacks by U.S. helicopters. The defendants also offered to provide regular shipments of ammunition. In total, ORBACH and Pouryan agreed to provide over $25 million in weapons, ammunition, and training, and expected to make over $800,000 in commissions in connection with the transaction.

The defendants also discussed various weapons requested by the purported Taliban representative, drafted price lists and payment schedules for the weapons, and created internal budget documents that reflected the expenses and anticipated income from the weapons deal. ORBACH also emailed third-party weapons suppliers seeking to obtain certain of the requested weapons.

Following the final meeting in Bucharest, Romania, on February 10, 2011, ORBACH and Pouryan were arrested by Romanian authorities in coordination with the DEA. In April 2011, the Government of Romania extradited the defendants to the United States to face charges in the Southern District of New York.

In addition to the prison term, ORBACH, 55, Highland Park, Illinois, was ordered to pay $1,596.00 in forfeiture, and a $200 special assessment fee.

Mr. Bharara praised the extraordinary work of the Special Operations Division of the DEA, as well as the DEA Warsaw Country Office, the DEA Ghana Country Office, the DEA Athens Country Office, and the DEA SECI (South East European Cooperative Initiative Regional Center for Combating Transborder Crime). Mr. Bharara also thanked the Department of Justice’s Office of International Affairs and National Security Division, as well as the U.S. Attorney’s Office for the Northern District of Illinois, U.S. Immigration and Customs Enforcement, and the governments of Romania and Ukraine.

Mr. Bharara expressed his sincere gratitude for the work of the Romanian National Prosecutor’s Directorate for Investigating Organized Crime and Terrorism, the Romanian Prosecutor’s Office of the Court of Appeals, and the Romanian National Police Directorate for Investigating Organized Crime.

This prosecution is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant U.S. Attorneys Christian R. Everdell and Aimee Hector are in charge of the prosecution.

There has been much misinformation and factual inaccuracy in the reporting on the charges against Devyani Khobragade. It is important to correct these inaccuracies because they are misleading people and creating an inflammatory atmosphere on an unfounded basis. Although I am quite limited in my role as a prosecutor in what I can say, which in many ways constrains my ability here to explain the case to the extent I would like, I can nevertheless make sure the public record is clearer than it has been thus far.

First, Ms. Khobragade was charged based on conduct, as is alleged in the Complaint, that shows she clearly tried to evade U.S. law designed to protect from exploitation the domestic employees of diplomats and consular officers. Not only did she try to evade the law, but as further alleged, she caused the victim and her spouse to attest to false documents and be a part of her scheme to lie to U.S. government officials. So it is alleged not merely that she sought to evade the law, but that she affirmatively created false documents and went ahead with lying to the U.S. government about what she was doing. One wonders whether any government would not take action regarding false documents being submitted to it in order to bring immigrants into the country. One wonders even more pointedly whether any government would not take action regarding that alleged conduct where the purpose of the scheme was to unfairly treat a domestic worker in ways that violate the law. And one wonders why there is so much outrage about the alleged treatment of the Indian national accused of perpetrating these acts, but precious little outrage about the alleged treatment of the Indian victim and her spouse?

Second, as the alleged conduct of Ms. Khobragade makes clear, there can be no plausible claim that this case was somehow unexpected or an injustice. Indeed, the law is clearly set forth on the State Department website. Further, there have been other public cases in the United States involving other countries, and some involving India, where the mistreatment of domestic workers by diplomats or consular officers was charged criminally, and there have been civil suits as well. In fact, the Indian government itself has been aware of this legal issue, and that its diplomats and consular officers were at risk of violating the law. The question then may be asked: Is it for U.S. prosecutors to look the other way, ignore the law and the civil rights of victims (again, here an Indian national), or is it the responsibility of the diplomats and consular officers and their government to make sure the law is observed?

Third, Ms. Khobragade, the Deputy General Consul for Political, Economic, Commercial and Women’s Affairs, is alleged to have treated this victim illegally in numerous ways by paying her far below minimum wage, despite her child care responsibilities and many household duties, such that it was not a legal wage. The victim is also alleged to have worked far more than the 40 hours per week she was contracted to work, and which exceeded the maximum hour limit set forth in the visa application. Ms. Khobragade, as the Complaint charges, created a second contract that was not to be revealed to the U.S. government, that changed the amount to be paid to far below minimum wage, deleted the required language protecting the victim from other forms of exploitation and abuse, and also deleted language that stated that Ms. Khobragade agreed to “abide by all Federal, state, and local laws in the U.S.” As the Complaint states, these are only “in part” the facts, and there are other facts regarding the treatment of the victim – that were not consistent with the law or the representations made by Ms. Khobragade -- that caused this Office and the State Department, to take legal action.

Fourth, as to Ms. Khobragade’s arrest by State Department agents, this is a prosecutor’s office in charge of prosecution, not the arrest or custody, of the defendant, and therefore those questions may be better referred to other agencies. I will address these issues based on the facts as I understand them. Ms. Khobragade was accorded courtesies well beyond what other defendants, most of whom are American citizens, are accorded. She was not, as has been incorrectly reported, arrested in front of her children. The agents arrested her in the most discreet way possible, and unlike most defendants, she was not then handcuffed or restrained. In fact, the arresting officers did not even seize her phone as they normally would have. Instead, they offered her the opportunity to make numerous calls to arrange personal matters and contact whomever she needed, including allowing her to arrange for child care. This lasted approximately two hours. Because it was cold outside, the agents let her make those calls from their car and even brought her coffee and offered to get her food. It is true that she was fully searched by a female Deputy Marshal -- in a private setting -- when she was brought into the U.S. Marshals’ custody, but this is standard practice for every defendant, rich or poor, American or not, in order to make sure that no prisoner keeps anything on his person that could harm anyone, including himself. This is in the interests of everyone’s safety.

Fifth, as has been reported, the victim’s family has been brought to the United States. As also has been reported, legal process was started in India against the victim, attempting to silence her, and attempts were made to compel her to return to India. Further, the Victim’s family reportedly was confronted in numerous ways regarding this case. Speculation about why the family was brought here has been rampant and incorrect. Some focus should perhaps be put on why it was necessary to evacuate the family and what actions were taken in India vis-à-vis them. This Office and the Justice Department are compelled to make sure that victims, witnesses and their families are safe and secure while cases are pending.

Finally, this Office’s sole motivation in this case, as in all cases, is to uphold the rule of law, protect victims, and hold accountable anyone who breaks the law – no matter what their societal status and no matter how powerful, rich or connected they are.

“The jury has found what the Government contended from the outset; in search of an edge, Michael Steinberg crossed the line into criminal insider trading. Like many other traders before him who, blinded by profits, lost their sense of right and wrong, Steinberg now stands convicted of federal crimes and faces the prospect of losing his liberty.”

Preet Bharara, the United States Attorney for the Southern District of New York, announced that MICHAEL STEINBERG, a portfolio manager of Sigma Capital Management, LLC (“Sigma”), a division of the Connecticut-based hedge fund S.A.C. Capital, was found guilty today in Manhattan federal court based on his participation in an insider trading scheme. STEINBERG was convicted after a five-week jury trial presided over by U.S. District Judge Richard J. Sullivan.

Manhattan U.S. Attorney Preet Bharara said: “The jury has found what the government contended from the outset; in search of an edge, Michael Steinberg crossed the line into criminal insider trading. Like many other traders before him who, blinded by profits, lost their sense of right and wrong, Steinberg now stands convicted of federal crimes and faces the prospect of losing his liberty.”

According to the Superseding Indictment filed in Manhattan federal court, other court documents, and the evidence presented at trial:

STEINBERG traded in the securities of two publicly traded technology companies, Dell, Inc. (“Dell”) and NVIDIA Corporation (“NVIDIA”), based on inside information that his research analyst Jon Horvath obtained from a circle of analyst friends at different investment firms. Horvath previously pled guilty to insider trading, as did analysts Jesse Tortora, formerly of Diamondback Capital, Spyridon “Sam” Adondakis, formerly of Level Global, Danny Kuo, formerly of Whittier Trust, and Sandeep Goyal, formerly of Neuberger Berman. STEINBERG’s trading in Dell and NVIDIA resulted in approximately $1.9 million in illegal profits for his hedge fund.

In particular, Tortora provided Horvath and others with Inside Information related to Dell’s quarterly earnings (the “Dell Inside Information”), which Tortora obtained from Goyal who, in turn, had obtained the information from an employee at Dell (the “Dell Insider”). For Dell’s quarter which was announced by Dell on August 28, 2008 (the “Dell Announcement”), the Dell Inside Information indicated that Dell would report gross margins that were materially lower than market expectations. In advance of the Dell Announcement, Horvath reported this negative inside information to STEINBERG.

On August 18, 2008, after a series of calls from the Dell Insider to Goyal and from Goyal to Tortora and Horvath, Horvath then called STEINBERG. Within a minute of the telephone call between STEINBERG and Horvath, STEINBERG’s portfolio began shorting shares of Dell. One minute later, Horvath wrote an email to STEINBERG stating: “Pls keep the DELL stuff especially on the down low . . . just mentioning that because JT [Jesse Tortora] asked me specifically to be extra sensitive with the info.” By the end of the day on August 18, 2008, STEINBERG had accumulated a net short position of over 167,000 shares of Dell. On August 26, 2008, Horvath confirmed in an email to STEINBERG and another portfolio manager at Sigma that Horvath’s Dell information had been based on a “2nd hand read from someone at the company.” STEINBERG responded: “Yes normally we would never divulge data like this, so please be discreet.” And on August 27, 2008, STEINBERG sent an email to Horvath with the subject line, “Dell action,” in which he asked, “Have u double checked [with] JT this week?” Horvath responded, “Yes he [Tortora] checked in [a] couple days ago, same read no change.” The following day, STEINBERG executed additional short trades based on the Dell Inside Information.

On August 28, 2008, before Dell’s Announcement, STEINBERG executed or caused to be executed additional short trades. STEINBERG also executed or caused to be executed options trades in Dell in advance of the Dell Announcement.

After the close of the market on August 28, 2008, Dell publicly announced gross margins that were substantially below market expectations. At the end of the next trading day following Dell’s Announcement, its stock price dropped by nearly 14%. Shortly thereafter, STEINBERG covered his short position, and closed out his position in Dell option contracts, resulting in an illegal profit for Sigma of approximately $1 million.

In addition, in 2009, Kuo obtained inside information regarding NVIDIA’s financial results (the “NVIDIA Inside Information”) in advance of NVIDIA’s quarterly earnings announcements. The NVIDIA Inside Information indicated, among other things, that NVIDIA’s gross margins would be lower than market expectations. Kuo obtained the NVIDIA Inside Information from a friend, Hyung Lim, who received it from an employee at NVIDIA (the “NVIDIA Insider”). In advance of NVIDIA’s May 7, 2009, quarterly earnings announcement (the “NVIDIA Announcement”), Kuo provided the NVIDIA Inside Information, which he had obtained from Lim, to Tortora, Horvath, and others. Horvath, in turn, provided the NVIDIA Inside Information to STEINBERG, who executed or caused to be executed transactions in NVIDIA in advance of the NVIDIA Announcement.

On May 7, 2009, NVIDIA publicly announced gross margins that were substantially lower than the market expected. At the end of the trading day following the NVIDIA Announcement, NVIDIA’s stock price dropped by more than 13%. Shortly thereafter, STEINBERG caused Sigma to liquidate its position in NVIDIA, resulting in an illegal profit for Sigma of over $400,000.

STEINBERG, 41, of New York, New York, was found guilty of conspiracy to commit securities fraud and four counts of securities fraud. The conspiracy count carries a maximum sentence of five years in prison and a fine of the greater of $250,000 or twice the gross gain or loss from the offense. Each of the securities fraud counts carries a maximum sentence of 20 years in prison and a fine of $5 million or twice the gross gain or loss from the offense.

STEINBERG is scheduled to be sentenced by Judge Sullivan on April 25, 2014.

Mr. Bharara praised the investigative work of the FBI. He also thanked the U.S. Securities and Exchange Commission.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.StopFraud.gov.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Antonia M. Apps and Harry A. Chernoff are in charge of the prosecution.

U.S. v. Michael Steinberg S4 Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, and Toni Weirauch, the Special Agent-in-Charge of the New York Field Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced that STANLEY L. COHEN, a Manhattan-based attorney, was charged in a six-count Indictment filed today with failing to report to the Internal Revenue Service (“IRS”) over $3 million in income paid to COHEN in the form of legal fees between 2005 and 2010. COHEN was also charged with scheming to defraud the New York State Tax authorities of taxes due to New York State as a result of COHEN’s failure to report, and affirmatively taking steps to hide, his income. He is expected to be presented in Manhattan federal court before U.S. District Judge Paul A. Engelmayer next week.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, Stanley Cohen instructed his clients to pay him in cash, and then stockpiled the money he received in legal fees in order to avoid paying his fair share in taxes. Today’s charges underscore our commitment to pursuing and prosecuting individuals who seek to circumvent this nation’s tax laws.”

IRS-CI Special Agent-in-Charge Weirauch said: “IRS-Criminal Investigation is committed to ensuring that everyone pays their fair share. We will thoroughly investigate those who are wilfully violating the income tax laws and we will work with our partners at the Department of Justice to see that they are prosecuted. However, while prosecuting violators is essential to making the tax system work, such prosecutions also reassure the confidence of honest taxpayers in their tax system.”

According to allegations contained in the Indictment filed in Manhattan federal court today:

Between October 2005 and 2011, STANLEY L. COHEN performed legal services for dozens of clients in proceedings in federal and state courts in New York State and elsewhere. The services COHEN provided – through an entity he set up in New York called “Stanley L. Cohen & Associates, LLC” – included the representation of clients at various stages of criminal proceedings, such as arraignments, bail and other pre-trial hearings, guilty pleas, and sentencings. In exchange for those services, COHEN was paid in excess of $500,000 in fee income for each of the years 2005 to 2010.

COHEN, however, failed to file tax returns with the IRS or the New York State Department of Taxation and Finance for each of the years 2005 to 2010, as he was required to do. In addition, COHEN took steps to evade his tax obligations, including: directing clients to pay legal fees in cash; storing portions of the cash legal fees in a safety deposit box rather than depositing the fees in a bank account; directing clients to pay legal fees by sending wire transmittals that were routed directly to pay COHEN’s American Express card bills; depositing legal fees in one or more personal bank accounts; and paying personal expenses, such as credit card bills, with client fees that had been deposited in personal and other bank accounts.

COHEN, 63, of New York, New York, is charged with five counts of failing to file U.S. Individual Income Tax Returns, each of which carries a maximum sentence of one year in prison, and one count of wire fraud, which carries a maximum sentence of 20 years in prison.

Mr. Bharara praised the outstanding investigative work of the IRS.

The case is being prosecuted by the Office’s Complex Frauds Unit. Assistant U.S. Attorney Stanley J. Okula, Jr. is in charge of the prosecution.

The charges contained in the Indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.

U.S. v. Stanley Cohen Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, announced that MICHAEL BALBOA, formerly a portfolio manager for Millennium Global Emerging Credit Fund (“MGEC” or the “Hedge Fund”), was found guilty today in Manhattan federal court of securities fraud, wire fraud, and investment adviser fraud charges, as well as conspiracy to commit securities fraud and wire fraud, in connection with BALBOA’s scheme to undermine the independent valuation process relating to the Hedge Fund, and to overvalue the assets of the Hedge Fund. BALBOA’s overvaluation of one particular security held in his portfolio, a sovereign contingent debt instrument issued by the Government of Nigeria (the “Nigerian Oil Warrant”), caused the Hedge Fund’s reported net asset value to be overstated by approximately $80 million dollars. BALBOA was convicted after a two-and-a-half-week trial presided over by U.S. District Judge Paul A. Crotty.

Manhattan U.S. Attorney Preet Bharara said: “Today’s verdict ensures that Michael Balboa will be punished for deceiving investors by manipulating the valuations at his former hedge fund to falsely inflate the fund’s performance, and enlisting others to help him. As Balboa now knows, those who mislead investors for their own personal gain, and then try to cover their tracks, will be pursued and prosecuted by this Office.”

According to the Superseding Indictment filed in Manhattan federal court, other court documents, and the evidence presented at trial:

From December 2006 to October 2008, BALBOA served as the portfolio manager for the Hedge Fund. The Hedge Fund’s strategy was to invest in a portfolio of corporate and sovereign debt instruments in emerging countries. The Hedge Fund utilized an independent valuation agent (the “IVA”) to determine the Hedge Fund’s “net asset value” (“NAV”), which is the value of the Hedge Fund’s assets, less liabilities and estimated costs of sale/liquidation. The Hedge Fund’s manager, the entity that employed Balboa, represented to investors that sources independent from Balboa would provide prices to the IVA for each security held in the Hedge Fund for purposes of determining the NAV on a monthly basis. For example, in one due diligence questionnaire sent on March 7, 2008, to a potential investor for the purpose of providing certain information about the Hedge Fund’s valuation process, the Hedge Fund’s manager noted that “[t]here are no assets valued in house” and that the IVA “calculates the NAV of [the Hedge Fund] independently of Millennium Global.”

Contrary to representations he made to investors about the independent valuation process, BALBOA himself provided inflated prices for the Nigerian Oil Warrant that were used for the Hedge Fund’s monthly valuation. BALBOA accomplished this by instructing Gilles DeCharsonville and Samuel Pratt, two co-conspirators with whom BALBOA worked, to provide the IVA with those values while falsely representing that the values were generated independently by DeCharsonville and Pratt. For example, in 2008, although the Nigerian Oil Warrant traded at a price no higher than $239, BALBOA directed DeCharsonville and Pratt to provide the IVA with marks ranging from approximately $525 to $3,500. The IVA then used these falsely inflated marks to compute the Hedge Fund’s monthly NAV, which, in turn, as of August 2008, caused the NAV to be overstated by approximately $80 million. These false values were then sent to investors by means of monthly newsletters, among other types of communications.

After Balboa’s employer, along with U.S. and foreign securities regulators, began to investigate the scheme, BALBOA took steps to cover his tracks. For example, BALBOA sent DeCharsonville false justifications for the inflated valuations for the purpose of further conveying to BALBOA’s employer, as well as the U.S. and foreign securities regulators.

BALBOA, 44, who currently resides in Melville, New York, and formerly resided in the United Kingdom, was convicted of all five counts in the Superseding Indictment, namely (1) securities fraud conspiracy; (2) wire fraud conspiracy; (3) securities fraud; (4) wire fraud; and (5) investment adviser fraud. He faces a maximum of five years in prison on each of the conspiracy counts, and 20 years in prison on each of the substantive fraud counts. The date for sentencing has not yet been scheduled.

Mr. Bharara praised the work of the United States Postal Inspection Service, which investigated this case. He also thanked the U.S. Securities and Exchange Commission.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.StopFraud.gov.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Jason H. Cowley and David I. Miller, and Special Assistant United States Attorney William T. Conway, are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that BARTEK ZAJKOWSKI, a Polish national, who resided in Queens, New York, was sentenced today by U.S. District Judge Kenneth M. Karas in White Plains federal court to 15 years in prison, consecutive to any sentence imposed in his pending state case in Connecticut, where he is charged with participating in a home invasion. ZAJKOWSKI’s criminal conduct included the attempted extortion of a family by whom he was previously employed and attempted robbery of them in their home in Bedford, Westchester County, New York.

U.S. Attorney Preet Bharara stated: “Bartek Zajkowski became one family’s nightmare of terror and violence. Now, thankfully, the nightmare is over, and we hope his victims can breathe easier. Mr. Zajkowski will be locked up for a long time. The conclusion of this case is a tribute to the cooperative and devoted efforts of law enforcement at every level.”

According to public documents filed in White Plains federal court, and related court proceedings:

ZAJKOWSKI, 23, a Polish citizen living in the United States illegally, had previously worked for a contractor in 2010 at the victims’ residence in Bedford Hills, New York.

On the evening of May 5, 2012, ZAJKOWSKI, dressed in black and armed with a gun, approached the victims’ house. He encountered Victim-1(“the Husband”), bound him with duct tape and plastic ties, and demanded to know where money and valuables were located in the house. The Husband told ZAJKOWSKI that he had expensive paintings and gold and silver items in the residence. ZAJKOWSKI then entered the house, encountered and struggled with Victim-2 (“the Wife”), ultimately shooting her in the stomach with a BB gun. ZAJKOWSKI bound Victim-2 with duct tape and plastic ties, and asked her to direct him to the expensive paintings. After ZAJKOWSKI left the Wife to look for the paintings, she was able to free herself and trigger the house’s alarm. ZAJKOWSKI escaped with no property other than the Husband’s wallet.

Two days later, in the early morning hours of May 7, 2012, ZAJKOWSKI burned down a barn located on the victims’ property. One week later, on May 14, 2012 and May 17, 2012, the victims received two extortion letters from an individual later determined to be ZAJKOWSKI. The letters demanded that the victims pay ZAJKOWSKI $3 million ($1 million for each of their three children) to ensure their family’s safety. In the letters, ZAJKOWSKI also discussed his struggle with the Wife, claimed responsibility for the barn fire, detailed what he had learned about the family through his surveillance of their home, and threatened harm to the victims’ children. ZAJKOWSKI also demanded that the victims deposit the money into a bank account in the Netherlands – a bank account that law enforcement officials later determined to be held by ZAJKOWSKI’s mother’s partner.

On June 1, 2012, the FBI and other law enforcement agents arrested ZAJKOWSKI pursuant to an arrest warrant stemming from a September 2011 home invasion in Ridgefield, Connecticut. Those Connecticut charges are still pending.

Mr. Bharara praised the outstanding investigative work of the FBI’s Westchester County Violent Crimes Task Force, the Westchester County District Attorney’s Office, the Bedford Police Department, the New York State Police, the Westchester County Department of Public Safety and the United States Marshals Service, NY/NJ Regional Fugitive Task Force.

The prosecution is being handled by the Office’s White Plains Division. Assistant U.S. Attorneys Andrew Bauer and Michael Gerber are in charge of the prosecution.

Discovery Requests Seek to Locate Benefits Paid to Convicted Former New York City Council Member Hiram Monserrate and Former Yonkers City Council Member Sandy Annabi

Preet Bharara, the United States Attorney for the Southern District of New York, announced today the filing of applications for orders forfeiting pension benefits, and the service of discovery requests seeking to locate benefits paid, regarding four former New York City Council and Yonkers City Council officials convicted of corruption offenses.

Manhattan U.S. Attorney Preet Bharara said: "With today's actions, we aim to prevent corrupt elected officials from continuing to benefit from pensions paid for by the very people they betrayed in office. As I announced this fall, we are committed to using every legal tool to take the profit out of crime, and that includes preventing public money from being used to fund the comfortable retirement of corrupt officials. This is what justice and common sense require."

As alleged in the applications and other court documents:

Former New York City Council members MIGUEL MARTINEZ, LARRY SEABROOK, and HIRAM MONSERRATE, and former Yonkers City Council member SANDY ANNABI, were convicted of corruption offenses between 2009 and 2012. On December 15, 2009, MARTINEZ was sentenced to 60 months’ imprisonment and ordered to forfeit $106,000. On January 8, 2013, SEABROOK was sentenced to 60 months’ imprisonment and ordered to forfeit $418,252.53. On December 11, 2012, MONSERRATE was sentenced to 24 months’ imprisonment and ordered to forfeit $79,434.49. On November 19, 2012, ANNABI was sentenced to 72 months’ imprisonment and ordered to forfeit $1,270,302.99. To date, none of these defendants has made a single payment toward their respective forfeiture obligations.

MARTINEZ and SEABROOK are currently vested members of the New York City Employee Retirement System. SEABROOK currently receives benefits, while MARTINEZ will be eligible to receive benefits when he reaches the age of 57. The Office has filed applications for orders forfeiting MARTINEZ and SEABROOK’s right to pension benefits until their forfeiture judgments are fully paid. MONSERRATE and ANNABI are believed to have terminated their pension memberships and received payments as a result. The Office has served discovery requests on MONSERRATE and ANNABI seeking to locate benefits that have been paid to them in order to satisfy the outstanding forfeiture judgments against them.

The prosecutions of these officials were handled by the Office’s Public Corruption Unit and its White Plains Division. The forfeiture of the defendants’ pensions is being handled by the Office’s Asset Forfeiture Unit. Assistant United States Attorney Paul Monteleoni is in charge of the forfeitures.

US v. Miguel Martinez Substitute Asset Application
US v. Larry Seabrook Substitute Asset Application
US v. Sandy Annabi Letter to Judge McMahon
US v. Hiram Monserrate Letter to Judge McMahon

Preet Bharara, the United States Attorney for the Southern District of New York, announced that CRAIG L. BERKMAN was sentenced today in Manhattan federal court to six years in prison for securities fraud and wire fraud in connection with a more than $13 million scheme to defraud investors through false ownership claims of stock in Facebook, Inc. (“Facebook”); Groupon, Inc. (“Groupon”); LinkedIn, Inc. (“LinkedIn”); and Zynga, Inc. (“Zynga”) before their respective initial public offerings, and in other private companies. In addition to the prison sentence, BERKMAN was ordered to forfeit to the United States $13,239,006, representing the proceeds of the fraud. BERKMAN pled guilty on June 25, 2013, and was sentenced today by U.S. District Judge Shira A. Scheindlin.

Manhattan U.S. Attorney Preet Bharara stated: “For several years Craig Berkman repeatedly lured investors with the false promise of benefiting from his companies’ ownership of pre-IPO stock all the while draining their money into his own pockets in a fraud that was part Ponzi scheme and part plain old theft. He is now paying a heavy price for his lies, forfeiting both his liberty and his money, and today’s sentence is a just and fitting conclusion to the multimillion-dollar fraud he perpetrated.”

According to the charging instruments in this case and statements made in open court today at the plea proceeding:

From 2010 until his arrest in March 2013, BERKMAN served as the managing member of a series of limited liability companies, which he effectively controlled, including Face-Off Acquisitions, LLC; Assensus Capital, LLC; and several LLCs with variations of the words “Ventures Trust” in their names (the “Ventures Trust LLCs”). Beginning in about October 2010, BERKMAN and others offered investors the opportunity to purchase units of each of these LLCs. In doing so, BERKMAN misrepresented to investors that the LLCs either owned or would soon acquire pre-initial public offering shares in various technology companies, including Facebook, Groupon, LinkedIn, and Zynga. BERKMAN also misappropriated millions of dollars of investor funds for his own use and benefit.

The ways in which BERKMAN carried out his scheme varied with each of the LLCs. In one instance, BERKMAN represented to investors that various Ventures Trust LLCs held large quantities of pre-IPO shares of Facebook, Groupon, LinkedIn, and Zynga. In fact, the Ventures Trust LLCs held no shares of Groupon, LinkedIn, or Zynga, and held only a small, indirect interest in pre-IPO Facebook shares. In another example, BERKMAN falsely told investors with Face-Off Acquisitions, LLC, that their money would be used to purchase an existing special purpose vehicle, which already held a significant stake in Facebook. BERKMAN also misrepresented to Assensus Capital Investors, LLC, investors that he would use their money to fund various start-ups, including technology, medical device, and energy companies, and that the investors’ funds would be partially secured by interests in pre-IPO Facebook stock. In fact, BERKMAN misappropriated most, if not all, of the investors’ money for his own use and benefit.

Ultimately, BERKMAN raised at least approximately $13.2 million in funds from more than 120 different investors, which he used for various unauthorized purposes. BERKMAN used approximately $6 million in stolen investor funds to pay off creditors in his personal bankruptcy, and in doing so, he misrepresented the source of those funds to the Bankruptcy Court. BERKMAN also used approximately $4.8 million of new investor money to pay off earlier investors, and spent approximately $1.6 million on legal fees, travel, other personal expenses, and in cash withdrawals, among other things.

BERKMAN, 71, of Odessa, Florida, was also sentenced to three years of supervised release and ordered to pay a mandatory $200 special assessment. Restitution will be determined at a later date.

Mr. Bharara praised the work of the Criminal Investigators of the U.S. Attorney’s Office and the United States Postal Inspection Service, which jointly investigated this case. He also thanked the U.S. Securities and Exchange Commission.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.StopFraud.gov.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys John J. O’Donnell and Matthew L. Schwartz are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that RICHARD AMMAR CHICHAKLI, an associate of international arms dealer Viktor Bout, was found guilty today, by a jury in Manhattan federal court, of conspiring with Bout and others to violate the International Emergency Economic Powers Act (“IEEPA”) by attempting to purchase commercial airplanes from American companies in violation of U.S. sanctions. CHICHAKLI was also found guilty of money laundering conspiracy, wire fraud conspiracy, and several counts of wire fraud, in connection with the attempted aircraft purchases. He was convicted following a four-week jury trial before U.S. District Judge William H. Pauley III.

Manhattan U.S. Attorney Preet Bharara said: “As the evidence at trial established, Richard Chichakli conspired to violate international sanctions by working to purchase aircraft for and with Viktor Bout, formerly one of the world's most notorious weapons traffickers. But for the intervention of our law enforcement partners, Chichakli would have played a vital role in furthering Bout's objectives.”

According to evidence at trial and documents previously filed in Manhattan federal court:

CHICHAKLI conspired with Viktor Bout and others to violate IEEPA by engaging in prohibited business transactions with companies based in the United States. The focus of these transactions was the purchase of commercial airplanes for a company that Bout and CHICHAKLI controlled, and the ferrying of those aircraft to Tajikistan. At the time of these unlawful transactions, both CHICHAKLI and Bout had been designated by the U.S. Treasury Department as Specially Designated Nationals (“SDNs”), which meant that individuals and businesses in the United States were prohibited from engaging in financial transactions with them. CHICHAKLI sought to evade these SDN sanctions by, among other things, concealing his identity and his SDN listing, and by concealing Viktor Bout’s involvement in the airplane transactions. In connection with this fraudulent scheme, CHICHAKLI helped to make a series of wire transfer payments, totaling more than $1.7 million; these payments were sent from overseas bank accounts into accounts in the United States.

CHICHAKLI was convicted of one count of conspiring to violate the IEEPA one count of money laundering conspiracy, one count of wire fraud conspiracy, and six counts of wire fraud. He faces a maximum sentence of five years in prison on the IEEPA conspiracy count, and a maximum of 20 years in prison on each of the other eight counts. CHICHAKLI is scheduled to be sentenced on March 14, 2014 at 2:00 p.m.

CHICHAKLI’s co-conspirator, Viktor Bout, is currently serving a 25-year prison term as a result of his November 2011 conviction in this District in connection with his conspiring to sell millions of dollars of weapons to a designated foreign terrorist organization.

Mr. Bharara praised the outstanding investigative efforts of the Special Operations Division of the DEA, and specially thanked the DEA Canberra Country Office, and the DEA Digital Evidence Laboratory. Mr. Bharara also thanked the Australian Federal Police, the Victoria State Police, and the Australian Attorney General’s Department, as well as the U.S. Department of Justice Office of International Affairs and National Security Division, and Interpol.

The case is being handled by the Terrorism and International Narcotics Unit. Assistant United States Attorneys Christian R. Everdell, Ian McGinley, and Jenna M. Dabbs are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, George Venizelos, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), and Toni Weirauch, the Special Agent-in-Charge of the New York Field Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced that PURNA CHANDRA ARAMALLA was arrested yesterday for engaging in a scheme to defraud Medicaid and Medicare through the sale of illegally diverted prescription drugs. ARAMALLA was also charged with a related money laundering offense. ARAMALLA was arrested yesterday morning and was presented in Manhattan federal court before U.S. Magistrate Judge Debra Freeman yesterday afternoon. A preliminary hearing is scheduled for January 13, 2014.

Manhattan U.S. Attorney Preet Bharara said: “The illegal diversion of prescription medications threatens the health of those induced to sell their medication rather than take it. It threatens the health of those who unwittingly purchase the repackaged drugs believing them to be factory-fresh. And, as alleged here, Purna Aramalla’s diversion scheme defrauded millions of dollars from Medicare and Medicaid, taxpayer-funded programs established to provide health care assistance for the elderly and indigent. This Office is committed not only to punishing and preventing fraud, and safeguarding Medicare and Medicaid, but also to protecting the public.”

FBI Assistant Director-in-Charge Venizelos said: “As alleged in the complaint, Aramalla conspired to defraud our government health care programs and profit from the illness and misfortune of others. Aramalla treated our American health care system as a vehicle to fuel his greed and line his own pockets. The FBI, in conjunction with our law enforcement partners, will continue to investigate and bring to justice criminals who bilk the system and defraud the American taxpayer.”

IRS-CI Special Agent-in-Charge Weirauch said: “The illegal sale of prescription drugs by pharmaceutical professionals is an escalating problem. Not only does it put potentially dangerous medications in the wrong hands, but fraudulent Medicare and Medicaid reimbursements divert resources from the government. The money laundering statutes have always been effective tools in the fight against illegal drugs. We are now applying these same laws to the illegal prescription drug business, tracing the lucrative proceeds that the sales of these drugs generate.”

According to the allegations contained in the Criminal Complaint unsealed today:

ARAMALLA operates A Fair Deal Pharmacy Inc. in Queens, New York, and Quality Health Drug Inc. in Bronx, New York. Using these pharmacies, ARAMALLA allegedly carried out a multimillion-dollar scheme to defraud New York State Medicaid and Medicare programs through the sale of diverted pharmaceutical drugs, that is, drugs not obtained from legitimate sources.

As part of the scheme, ARAMALLA purchased pharmaceuticals, including high-cost medications used to treat HIV, that were obtained from patients who sold the pharmaceuticals rather than use them to treat their illnesses. ARAMALLA then repackaged and resold those pharmaceuticals to his customers, as if the pharmaceuticals were new drugs obtained from legitimate sources. ARAMALLA requested and received reimbursement from Medicaid and Medicare in connection with these sales, even though Medicaid and Medicare would not have been willing to reimburse the cost of second-hand drugs. In addition, in some cases, Medicaid or Medicare had already paid for the pharmaceuticals when they were initially dispensed. In order to make the diverted pharmaceuticals appear to be new pharmaceuticals from legitimate sources, ARAMALLA and his co-conspirators used lighter fluid and other means to dissolve the adhesive on the patient labels on prescription bottles so that they could be removed and replaced with new labels.

ARAMALLA also sought and obtained reimbursement for pharmaceuticals that were never actually dispensed to patients. Instead, customers with prescriptions for pharmaceuticals essentially “sold” their prescriptions to ARAMALLA, agreeing not to take delivery of the pharmaceuticals in exchange for a share of the reimbursed proceeds.

From October 2010 to August 2012, ARAMALLA purchased approximately $1.7 million of certain branded HIV medications from two legitimate, licensed wholesalers that were his primary sources of legitimate drugs. During that same period, he received approximately $4.3 million in reimbursements from Medicare and Medicaid for those same drugs, an amount far in excess of what he would have been entitled to had he only sought reimbursement for the legitimately obtained drugs.

ARAMALLA, 65, of Port Washington, New York, is charged with one count of conspiracy to commit health care fraud and wire fraud, which carries a maximum term of 20 years in prison, and one count of money laundering, which also carries a maximum term of 20 years in prison. He was ordered detained pending satisfaction of bail conditions, including a $2 million personal recognizance bond.

Mr. Bharara praised the outstanding investigative work of the FBI and the IRS. He also thanked the U.S. Department of Health and Human Services, Office of Inspector General, the New York State Office of Medicaid Inspector General, and the New York City Human Resources Administration.

The New York FBI Health Care Fraud Task Force was formed in 2007 in an effort to combat health care fraud in the greater New York City area. The task force comprises agents, officers, and investigators from the FBI, NYPD, the New York State Insurance Fraud Bureau, U.S. Department of Labor, U.S. Office of Personnel Management Inspector General, U.S. Food and Drug Administration, New York State Attorney General's Office, New York State Office of Medicaid Inspector General, New York State Health and Hospitals Inspector General, and the National Insurance Crime Bureau.

If you think you may have purchased second-hand prescription drugs or were otherwise victimized by this scheme, you can call the FBI Hotline at 212-384-3555.

The case is being prosecuted by the Office’s Complex Frauds Unit. Assistant U.S. Attorney Niketh Velamoor is in charge of the prosecution.

The charges contained in the Complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.

U.S. v. Purna Chandra Aramalla Complaint

Preet Bharara, the United States Attorney for the Southern District of New York, announced that ALICIA HOLMES was sentenced today in White Plains federal court by United States District Judge Kenneth M. Karas to six years in prison for defrauding individuals and businesses of hundreds of thousands of dollars in accommodations, goods, services, and money. HOLMES pled guilty on March 1, 2013, to one count of wire fraud, one count of mail fraud, and one count of providing a false address in furtherance of fraud before Judge Karas.

Manhattan U.S. Attorney Preet Bharara stated: “Many of us would enjoy some of the finer things in life – a lavish home, luxurious hotel suites – and would work for those goals. Alicia Holmes took a huge shortcut with her fraudulent schemes. With today’s sentence, her next address will far more basic.”

According to the Indictment and documents filed in court proceedings:

Holmes’ scheme spanned from approximately April 2007 through May 2011. To attain a life of luxury, Holmes told scores of lies to real estate brokers, property builders, home owners, hotel managers and staff, and school administrators, among others, including lies about her net worth, about where she lived, and about having access to a vast “overseas trust” within a short period of time. To live in hotels with her husband and two sons, Holmes had the bills paid for by friends who trusted her and by real estate brokers who believed she would soon be purchasing multimillion-dollar homes, which would lead to large commissions for the brokers. Holmes also conned hotel employees into letting her and her family stay at their hotels for months at a time without payments. To keep the scheme going, Holmes impersonated lawyers, bankers, and an FBI agent. Additionally, Holmes instructed victims not to cooperate with federal law enforcement agents who were investigating her scheme.

In addition to the prison term imposed on HOLMES, 49, Judge Karas ordered HOLMES to forfeit $542,343.51, to pay restitution to her victims in the amount of $894,205.01, and to serve three years of supervised release.

Mr. Bharara praised the outstanding investigative work of the United States Postal Inspection Service and the Federal Bureau of Investigation.

The case is being handled by the Office’s White Plains Division. Assistant U.S. Attorneys Ilan Graff and Lee Renzin are in charge of the prosecution.

Holmes Alicia.S2

Largest Bankruptcy Award Ever for Governmental Environmental Claims and Liabilities, and One of the Largest Environmental Enforcement Awards Ever

Preet Bharara, the United States Attorney for the Southern District of New York (“SDNY”), Robert G. Dreher, the Acting Assistant Attorney General for the Justice Department’s Environment and Natural Resource Division (“ENRD”), Cynthia Giles, the Assistant Administrator for the Office of Enforcement and Compliance of the U.S. Environmental Protection Agency (“EPA”), and Judith Enck, Regional Administrator of the EPA’s Region 2, announced today that the United States Bankruptcy Court for the Southern District of New York has awarded between $5.1 billion and $14.1 billion against defendant Kerr-McGee Corporation and certain related defendant companies (“Kerr-McGee” or “New Kerr-McGee”), all of which are subsidiaries of the Anadarko Petroleum Corporation, in a fraudulent conveyance case brought by the United States and co-plaintiff Anadarko Litigation Trust (the “Trust”) in the bankruptcy of Tronox, Inc., and its subsidiaries (“Tronox”). The Court found that in 2005 the historic Kerr-McGee Corporation (“Old Kerr-McGee”) fraudulently conveyed assets to New Kerr-McGee to evade its debts, including its liability for environmental clean-up at toxic sites around the country. This is the largest award ever in a bankruptcy for governmental environmental claims and liabilities, and one of the largest environmental enforcement awards ever.

Manhattan U.S. Attorney Preet Bharara said: “The United States will not let polluters evade their environmental liabilities through a corporate shell game. For decades, the Old Kerr-McGee Corporation dumped toxic chemicals across the United States, and then it tried to dump its obligation to clean up this mess on an insolvent company. In its wake, Old Kerr McGee left a legacy of contamination in communities across the nation, which has affected homes, places of worship, and town centers. The Court’s decision means that Kerr-McGee will finally have to pay for its pollution, and will fund clean-up in contaminated communities across the nation.”

Acting Assistant Attorney General Robert G. Dreher said: “We are very pleased with this outcome, which will appropriately and fairly account for past pollution and replenish funds for tomorrow’s cleanups. This court decision also sends a clear message that polluters cannot simply walk away from a toxic legacy and leave federal, state, and tribal governments to pick up the tab. This ruling will keep the financial burden on the responsible party, and not allow it to be shifted to the American taxpayer.”

EPA Assistant Administrator Cynthia Giles said: “The Court’s decision makes a strong statement that companies should take responsibility for the toxic pollution they cause. Those that manipulate their assets and leave American taxpayers to foot the bill to clean up their mess will be held accountable. This is a huge win for public health and the environment, as proceeds from the decision will fund needed cleanups across America.”

EPA Regional Administrator Judith Enck said: “This legal victory illustrates EPA’s commitment to cleaning up toxic waste sites in communities and ensuring that polluters, not taxpayers, pay for the environmental remediation. This was a complex case and the outcome ensures that billions of dollars will be channeled to advance toxic cleanups.”

The Fraudulent Conveyance

According to the complaints of the Government and the Trust and the written opinion of U.S. Bankruptcy Judge Allan L. Gropper:

Old Kerr-McGee operated numerous businesses, which included uranium mining, the processing of radioactive thorium, creosote wood treating, and manufacture of perchlorate, a component of rocket fuel. These operations left contamination across the nation, including radioactive uranium waste across the Navajo Nation; radioactive thorium in Chicago and West Chicago, Illinois; creosote waste in the Northeast, the Midwest, and the South; and perchlorate waste in Nevada.

In the years prior to 2005, Old Kerr-McGee concluded that the liabilities associated with this environmental contamination were a drag on its “crown jewel” business, the exploration and production of oil and gas. With the intent of evading these and other liabilities, Old Kerr-McGee created a new corporate entity – defendant New Kerr-McGee – and, through a series of corporate transactions in 2005 and 2006, transferred its valuable oil and gas exploration assets to the new company. The legacy environmental liabilities were left behind in the old company, which was re-named Tronox. As a result of these transactions, Tronox was rendered insolvent and unable to address its environmental and other liabilities. In 2009, Tronox went into bankruptcy.

The United States and the bankruptcy estate (now represented by the Trust) brought this lawsuit to require the defendants to repay the value of the assets fraudulently conveyed from Old Kerr-McGee.

In its decision, the Court found that Old Kerr-McGee transferred assets with the intent to hinder or delay creditors, including particularly environmental creditors, and also transferred those assets for less than their fair value, which left Tronox insolvent, unable to pay its debts when they came due, and undercapitalized. Among other things, the Court concluded that:

• “[T]here can be no dispute that Kerr-McGee acted to free substantially all its assets – certainly its most valuable assets – from 85 years of environmental and tort liabilities.”
• “[O]verhelming” evidence demonstrated that “Defendants devised, carried out and had complete knowledge that [the transfer of Old Kerr-McGee’s oil and gas exploration and production assets was] part of ‘a single integrated scheme’ to create a ‘pure play’ E&P business free and clear of the legacy liabilities.”
• “[T]here is no credibility to the uniform testimony of the inner circle [of Old Kerr-McGee management] that isolation of the oil and gas assets from the chemical business had nothing to do with an effort to cleanse the E&P assets from the legacy liabilities.”
• “The record is replete with evidence that Kerr-McGee misapplied [the] standard [for setting reserves for environmental claims under Generally Accepted Accounting Principles] and thereby understated its liabilities for GAAP purposes.”
• Statements by former Old Kerr-McGee employees that the cost of this environmental pollution would decline after the spin-off were “not rooted in reality.”

The Court concluded that the net proceeds of the fraudulent transfer were $14,459,000,000, and that, depending on a question of bankruptcy law still to be decided in further proceedings, will result in a damages award of between $5,150,490,000 and $14,166,148,000. The bankruptcy court will conduct further proceedings to determine the amount of damages within this range.

Prior Bankruptcy Settlement and Distribution of Fraudulent Conveyance Recovery

In 2011, in connection with Tronox’s Plan of Reorganization, the estate paid approximately $270 million to fund environmental response trusts created to own and clean-up contaminated property. Additionally, pursuant to the Plan of Reorganization and agreements signed at that time, approximately 88% of the recovery in this lawsuit, net of Trust expenses, will be distributed to the environmental trusts and to the federal, state, and local environmental creditors for environmental clean-up of contaminated sites around the nation.

As a result of these agreements, some of the key environmental recoveries for environmental claims and for clean-up of environmental sites are estimated to be the following:

• Between $1.1 billion and $3.1 billion for the Multistate Environmental Response Trust created in the bankruptcy to clean up more than two dozen contaminated sites around the country, including the Kerr-McGee Superfund Site in Columbus, Mississippi.
• Between $1.1 billion and $3.1 billion to be paid to the Nevada Environmental Response Trust created in the bankruptcy to clean up the perchlorate and other contamination resulting from operations at an industrial park near Lake Mead in Nevada.
• Between $880 million and $2.4 billion to be paid to EPA for clean-up of contamination from uranium mining on the Navajo Nation.
• Between $220 million and $620 million to be paid to EPA for clean-up of thorium contamination at the Welsbach Superfund Site in Gloucester, New Jersey.
• Between $213 million and $601 million to be paid to the federal Superfund in repayment of costs previously incurred by EPA cleaning up the Federal Creosote Superfund Site in Manville, New Jersey.

Additional amounts will be paid for numerous other environmental claims and sites at issue in this case.

Mr. Bharara thanked the Trust, its trustee, and its counsel for their critical work on this case. Mr. Bharara also thanked the many federal, state, and tribal officials who worked tirelessly on this matter. The litigation of this case was assisted by EPA personnel from around the country; the U.S. Fish & Wildlife Service and Bureau of Land Management of the U.S. Department of the Interior; the National Oceanic and Atmospheric Administration of the U.S. Department of Commerce; the U.S. Nuclear Regulatory Commission; and the U.S. Forest Service of the U.S. Department of Agriculture, as well as numerous state governments and the Navajo Nation.

This case was handled by the Environmental Protection Unit and Tax and Bankruptcy Unit of the Office’s Civil Division. Assistant U.S. Attorneys Robert William Yalen and Joseph Pantoja, along with Alan S. Tenenbaum, Katherine Kane, Frederick S. Phillips, Marcello Mollo, and Erica Pencak of ENRD, are in charge of this case.

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that the United States has filed and settled a federal civil rights lawsuit under the Fair Housing Act against 61 MAIN STREET CORPORATION and ROSARIO MACRI for discriminating against African-Americans seeking to rent apartments at an apartment complex located at 123 South Broadway in Irvington, New York. The settlement, in the form of a consent decree, was approved today by U.S. District Judge Kenneth M. Karas.

Manhattan U.S. Attorney Preet Bharara said: “Nobody should be deprived of housing opportunities based on his or her race or color. This case should be a wake-up call to any landlord or building owner who discriminates. Racial discrimination in housing is not only antithetical to the principles of fairness and equality, it is against the law.”

The apartment complex at 123 South Broadway is a 22-unit residential apartment complex located in the Village of Irvington, in Westchester County, New York. The apartment complex is owned by 61 MAIN STREET CORPORATION. ROSARIO MACRI is the president of 61 MAIN STREET CORPORATION and manages the apartment complex. According to the Complaint filed in federal court in Manhattan, since at least August 2012, 61 MAIN STREET CORPORATION and ROSARIO MACRI have engaged in conduct constituting discrimination on the basis of race and color under the Fair Housing Act.

Specifically, the United States alleges that 61 MAIN STREET CORPORATION and ROSARIO MACRI have engaged in racially discriminatory housing practices, including failing to inform African-American prospective tenants about available apartments, while telling Caucasian prospective tenants, even on the same day, that apartments were in fact available. The Complaint also alleges that 61 MAIN STREET CORPORATION and ROSARIO MACRI failed to show available apartments and give rental applications to African-American prospective tenants, but showed available apartments and gave rental applications to Caucasian prospective tenants, even on the same day. In addition, the Complaint alleges that 61 MAIN STREET CORPORATION and ROSARIO MACRI provided higher rent prices and less favorable security deposit terms to African-American prospective tenants than those offered to similarly situated Caucasian prospective tenants.

The Consent Decree requires 61 MAIN STREET CORPORATION and ROSARIO MACRI, among other things, to refrain from discriminating on the basis of race in their rental practices, and to implement a non-discrimination policy and non-discriminatory standards and procedures, as set forth in the Consent Decree, at the apartment complex at 123 South Broadway. In addition, 61 MAIN STREET CORPORATION and ROSARIO MACRI will pay $60,000 into a fund for the compensation of victims of their discriminatory conduct, as well as a $32,000 civil penalty to the United States.

The case is being handled by the Office’s Civil Rights Unit. Assistant United States Attorney Rebecca S. Tinio is in charge of the case.

U.S. v. 61 Main Street Corporation and Rosario Marci Consent Decree

Preet Bharara, the United States Attorney for the Southern District of New York, today announced the arrest of DEVYANI KHOBRAGADE on charges that KHOBRAGADE allegedly caused a materially false and fraudulent document to be presented, and materially false and fraudulent statements to be made, to the United States Department of State in support of a visa application for an Indian national employed as a babysitter and housekeeper at KHOBRAGADE’s home in New York, New York. KHOBRAGADE is currently employed as the Deputy Consul General for Political, Economic, Commercial and Women’s Affairs at the Consulate General of India in New York, New York.

Manhattan U.S. Attorney Preet Bharara said: “Foreign nationals brought to the United States to serve as domestic workers are entitled to the same protections against exploitation as those afforded to United States citizens. The false statements and fraud alleged to have occurred here were designed to circumvent those protections so that a visa would issue for a domestic worker who was promised far less than a fair wage. This type of fraud on the United States and exploitation of an individual will not be tolerated.”

According to the allegations in the criminal complaint unsealed today in Manhattan federal court:

Diplomats and consular officers may obtain A-3 visas for their personal employees, domestic workers, and servants if they meet the requirements set out in 9 Foreign Affairs Manual (“FAM”) 41.22. As part of the application process, an interview at the embassy or consulate is required. Proof is required that the applicant will receive a fair wage, sufficient to support himself financially, comparable to that being offered in the area of employment in the U.S. To apply for an A-3 visa, the visa applicant must submit an employment contract signed by both the employer and the employee which must include, among other things, a description of duties, hours of work, the hourly wage – which must be the greater of the minimum wage under U.S. federal and state law, or the prevailing wage – for all working hours, overtime work, and payment.

DEVYANI KHOBRAGADE prepared and electronically submitted an application for an A-3 visa (the “Visa Application”) through the website for the U.S. Department of State’s Consular Electronic Application Center for an Indian national (“Witness-1”), who was to be the personal employee of KHOBRAGADE beginning in November 2012 at an address in New York, New York. The Visa Application stated that Witness-1 was to be paid $4,500 per month in U.S. dollars. KHOBRAGADE and Witness-1 also signed an employment contract (the “First Employment Contract”) for Witness-1 to bring to Witness-1’s interview at the U.S. Embassy in India in connection with the Visa Application, which Witness-1 did at KHOBRAGADE’s direction. The First Employment Contract stated, among other things, that KHOBRAGADE would pay Witness-1 the prevailing or minimum wage, whichever is greater, resulting in an hourly salary of $9.75.

KHOBRAGADE knew that the First Employment Contract that KHOBRAGADE caused Witness-1 to submit to the U.S. State Department in connection with Witness-1’s Visa Application contained materially false and fraudulent statements about, among other things, Witness-1’s hourly wage and hours worked. Prior to the signing of the First Employment Contract, KHOBRAGADE and Witness-1 had agreed that KHOBRAGADE would pay 30,000 rupees per month, which at the time was equivalent to $573.07 U.S. At 40 hours per week, with approximately 4.3 weeks in a month, $573.07 equates to a rate of $3.31 per hour. However, KHOBRAGADE instructed Witness-1 to say that she would be paid $9.75 per hour, and not to say anything about being paid 30,000 rupees per month. KHOBRAGADE also instructed Witness-1 to say that Witness-1 would work 40 hours per week, and that Witness-1’s duty hours would be 7 a.m. to 12:30 p.m., and 6:30 p.m. to 8:30 p.m. She told Witness-1 that the First Employment Contract was a formality to get the visa.

After the First Employment Contract was submitted to the United States Department of State, KHOBRAGADE told Witness-1 that Witness-1 needed to sign another employment contract (the “Second Employment Contract”). KHOBRAGADE and Witness-1 signed the Second Employment Contract, which provided that Witness-1’s maximum salary per month including overtime allowance will not exceed 30,000 rupees per month. The Second Employment Contract does not contain any provision about the normal number of working hours per week or month.

Witness-1 worked for KHOBRAGADE as a household employee in New York, New York, from approximately November 2012 through approximately June 2013. Notwithstanding the terms of the First Employment Contract, Witness-1 worked far more than 40 hours per week, and Witness-1 was paid less than $9.75 per hour by KHOBRAGADE. In fact, notwithstanding the terms of the oral agreement between KHOBRAGADE and Witness-1 and the terms of the Second Employment Contract, Witness-1 was paid less than 30,000 rupees per month, or $3.31 per hour.

KHOBRAGADE, 39, was charged with one count of visa fraud and one count of making false statements, which carry maximum sentences of ten years and five years in prison, respectively. She is expected to appear this afternoon before U.S. Magistrate Judge Debra Freeman.

Manhattan U.S. Attorney Bharara thanked the Department of Justice’s Human Trafficking Prosecution Unit for playing an integral role in this investigation, and for providing ongoing support in this prosecution.

The Office’s Organized Crime Unit is handling the case. Assistant U.S. Attorneys Amanda Kramer and Kristy Greenberg are in charge of the prosecution.

The charges contained in the complaint are merely an accusation, and the defendant is presumed innocent unless and until proven guilty.

U.S. v. Devyani Khobragade Complaint

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that SHABARI FISHER was sentenced in White Plains federal court to 15 years in prison for his leadership role in a drug conspiracy that distributed heroin across the City of Poughkeepsie, including out of a cellphone store on Main Street. FISHER pled guilty in October 2013 to one count of conspiracy to distribute heroin. He is one of 11 individuals charged by an Indictment in September 2012, six of whom have pleaded guilty. FISHER is the second defendant to be sentenced in the case by U.S. District Judge Kenneth M. Karas. On December 6, 2013, Shateek Parker, the second-in-command of the heroin conspiracy, was sentenced by Judge Karas to 135 months in prison.

U.S. Attorney Preet Bharara said: “Shabari Fisher and his accomplices should have stuck with cellphones because they made a huge mistake when they decided to enter the grim business of selling heroin. They now know there is no safe front for peddling heroin and destroying lives, families, and communities. Today’s sentence is a clear signal: If you see in our Hudson Valley an opportunity to profit from drugs, then you are leading yourself and your followers to long terms behind bars.”

According to the Indictment and information presented for purposes of Fisher’s guilty plea and sentencing:

From at least January 2011 through September 2012, a drug trafficking organization (the “FISHER Organization” or the “organization”) was operating in Poughkeepsie, New York. The FISHER Organization distributed heroin at several locations in and around Poughkeepsie. The locus of the organization’s heroin distribution was a cellphone store on Main Street in Poughkeepsie. At the cellphone store, members of the conspiracy concealed heroin, sold heroin to customers, and met with heroin customers to direct them to other locations for heroin transactions. On September 27, 2013, during execution of a search warrant, FBI agents recovered a .44 caliber handgun and ammunition concealed in the front of the store.

The FISHER Organization distributed heroin using, among other things, a succession of cellphones that individuals seeking heroin regularly called (the “Dispatch Phones”). Different members of the FISHER Organization held the Dispatch Phones at different times, receiving calls from heroin customers and arranging to meet with the customers at locations in Poughkeepsie to conduct heroin transactions. The bags of heroin distributed by the Fisher Organization were often stamped with brand-like names, such as “True Religion,” “Gucci,” “Rated R,” “Red Bull,” “Coors Light,” “Scarface,” and “Bomb.”

FISHER and Parker, the defendants, were leaders of the FISHER Organization who directed the activity of other members. FISHER and Parker participated in, among other things, obtaining supplies of heroin, providing heroin to other members of the FISHER Organization for further distribution, and steering heroin customers who approached FISHER to other members of the organization to conduct heroin transactions.

In addition to his prison term, FISHER, 34, of Poughkeepsie, New York, was also sentenced to five years of supervised release, and was ordered to pay forfeiture of $100,000.

Mr. Bharara praised the outstanding work of the FBI, the Poughkeepsie Police Department, the Dutchess County Sheriff's Office, the Drug Enforcement Administration, Immigration and Customs Enforcement, the United States Marshal’s Service Fugitive Unit, the New York State Police – CNET, the Orange County Sheriff’s Office, the Newburgh Police Department, the Middletown Police Department, the Beacon Police Department, the Dutchess County Probation Office, the Dutchess County Jail, and the New York Department of Correctional Services.

The charges against the remaining defendants contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

The prosecution is being handled by the Office’s White Plains Division. Assistant U.S. Attorneys Benjamin Allee and Michael Gerber are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that FRANKIE FROKAJ, a leader of an Albanian drug gang called the “Wolfpack,” was sentenced today by United States District Judge George B. Daniels to 135 months in prison in connection with his role in the organization. FROKAJ pled guilty in April 2013 to one count of conspiring to distribute 1,000 kilograms and more of marijuana. All thirteen members and associates of the Wolfpack originally charged in this case in September 2012 have pled guilty, and 10 have now been sentenced to terms ranging from probation to 168 months in prison.

Manhattan U.S. Attorney Preet Bharara said: “Today, Frankie Frokaj became the latest member of the Wolfpack organization to be punished for his role in this Bronx-based narcotics trafficking crew, whose members also illegally carried and sold dangerous firearms. All 13 defendants charged in this case have been convicted, several have been sentenced to significant prison time, and the Bronx neighborhood streets are safer as a result.”

According to the Indictment, other documents filed in Manhattan federal court, and statements made at various proceedings in this case:

The Wolfpack was a criminal organization composed primarily of individuals of Albanian descent that operated from at least 2008 until August 2012 in the Bronx, New York. The group planned and committed a variety of criminal acts as opportunities arose, including narcotics distribution and weapons possession. For example, the group maintained dedicated phones over which customers could order cocaine and marijuana, and coordinated the use of cars to deliver cocaine and marijuana to its customers. Members and associates of the Wolfpack used these “drug routes” to distribute at least 1,000 kilograms of marijuana and 500 grams of cocaine. The group also distributed prescription pills containing oxycodone, a Schedule II controlled substance.

Wolfpack members, including Christopher Nrecaj, David Nrecaj, Joseph Camaj, and FROKAJ, carried firearms in furtherance of their narcotics crimes and engaged in the sale of firearms. To date, the Government has recovered eight firearms and ammunition from members of the Wolfpack through sales involving a confidential informant and during their arrests, including:

• a Sig Sauer nine millimeter handgun, a Bushmaster rifle, a Mac 11 machine pistol, and ammunition purchased by the CI from David Nrecaj;
• a Taurus PT99 AF nine millimeter handgun and ammunition purchased by the CI from David Nrecaj and Corry Lombardi;
• two nine millimeter handguns and a pump action shotgun recovered during the course of Christopher and David Nrecaj’s arrests; and
• a .22 caliber handgun recovered during the course of Driton Haxhijaj’s arrest. Haxhijaj was found hiding in a closet, and the handgun and roughly one pound of marijuana were found in the same closet.

The Government has further recovered a bullet-proof vest, quantities of cocaine and marijuana, drug ledgers, digital scales, and other drug paraphernalia from various members and associates of the Wolfpack.

In addition to the prison term, FROKAJ, 29 of the Bronx, New York, was also sentenced to five years of supervised release and ordered to forfeit $3,000,000.

The earlier sentencings of Wolfpack members and associates included the following:

• On December 3, 2013, Christopher Nrecaj was sentenced to 168 months in prison on narcotics and firearms charges;
• On December 3, 2013, Corry Lombardi was sentenced to 70 months in prison on narcotics charges;
• On December 3, 2013, Driton Haxhijaj was sentenced to 60 months in prison on narcotics charges;
• On August 7, 2013, Joseph Camaj was sentenced to 70 months in prison on narcotics charges;
• On August 3, 2013, Deda Frokaj was sentenced to 63 months in prison on narcotics charges;
• On April 18, 2013, George Cekaj was sentenced to 151 months in prison on narcotics charges;

The three remaining defendants are scheduled for sentencing in January and February 2014.

Mr. Bharara praised the investigative work of the Federal Bureau of Investigation and the New York City Police Department.

The case is being prosecuted by the Office’s Organized Crime Unit. Assistant U.S. Attorneys Peter M. Skinner and Rebecca G. Mermelstein are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, and Michele M. Leonhart, the Administrator of the Drug Enforcement Administration (DEA), announced that IOANNIS VIGLAKIS, a/k/a “Pablo,” pled guilty yesterday in Manhattan federal court to attempting to provide material support to the Fuerzas Armadas Revolucionarias de Colombia (“FARC”), a Colombian terrorist organization. VIGLAKIS, a citizen of Greece, was arrested in Panama City, Panama, in coordination with Panamanian authorities during August 2012. He waived extradition and was subsequently turned over to the custody of the United States. VIGLAKIS pled guilty before U.S. District Judge Katherine B. Forrest.

Manhattan U.S. Attorney Preet Bharara said: “By providing functioning rocket-propelled grenade launchers and other military-grade weapons to an individual he believed to be a FARC associate, Ioannis Viglakis was attempting to arm a known terrorist organization that he understood would use those weapons against Americans and Colombians. This Office will not stop its efforts to pursue and prosecute those who agree to provide weapons to a terrorist organization knowing that they might be used to attack American forces.”

DEA Administrator Michele M. Leonhart said: “This investigation clearly demonstrates DEA’s unique ability to disrupt and dismantle the arms-trafficking networks that supply weapons to the most significant global narco-terror organizations. DEA will continue to aggressively pursue international arms dealers and narco-terrorists who are focused on harming our nation's security.”

According to the Indictment previously unsealed in this case:

Beginning in November 2011, VIGLAKIS had a series of meetings with a DEA confidential source (the “CS”) who represented himself to be an associate of the FARC. During those meetings, which took place in Europe and Central America, the CS informed VIGLAKIS that he was seeking weapons for use by the FARC to attack American forces in Colombia. VIGLAKIS offered to provide the FARC with functional, bona fide, military-grade weapons – including assault rifles, rocket-propelled grenade (“RPG”) launchers and surface-to-air missiles – in exchange for cocaine and cash. During the meetings, VIGLAKIS and the CS also discussed the FARC’s use of these weapons to fight the Colombian and American governments, including by shooting down American aircraft in Colombia.

During the following months, VIGLAKIS indicated that he would provide the CS with several RPG launchers as a sample. On July 18, 2012, VIGLAKIS successfully arranged for the delivery in Europe of six live RPGs and three working RPG launchers, which were received by a DEA undercover agent.

VIGLAKIS, 53, pled guilty to one count of attempting to provide material support to the FARC. He faces a maximum sentence of 15 years in prison, and is scheduled to be sentenced by Judge Forrest on April 11, 2014, at 11:00 a.m.

Mr. Bharara praised the outstanding work of the Special Operations Division of the DEA, as well as the DEA Panama Country Office, the DEA Madrid Country Office, and the DEA Copenhagen Country Office. Mr. Bharara also thanked the U.S. Department of Justice Office of International Affairs and National Security Division, the U.S. Department of State, and the Government of the Republic of Panama.

This case is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant U.S. Attorneys Christian R. Everdell, Aimee Hector, and Michael Lockard are in charge of the prosecution.

U.S. v. Ioannis Viglakis S1 Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, and Steven G. Hughes, the Special Agent-in-Charge of the New York Office of the United States Secret Service, announced today the unsealing of an Indictment and a Complaint charging 23 individuals for their alleged participation in a large-scale counterfeit credit card scheme. As part of the scheme, the defendants allegedly obtained more than 1,000 stolen credit and debit card numbers, created counterfeit credit and debit cards with the stolen account information, and then utilized teams of “shoppers” to make more than $2 million of unauthorized purchases at retail stores located throughout the United States. In a coordinated operation early this morning, agents of the Secret Service and the Drug Enforcement Administration arrested 19 defendants in Flushing, Queens, and one defendant in Los Angeles, California. Agents also executed six search warrants and recovered counterfeit credit card manufacturing equipment and supplies. The defendants arrested in Queens will be presented before U.S. Magistrate Judge Debra Freeman in Manhattan federal court later today, and the defendant arrested in Los Angeles will be presented in federal court in the Central District of California this afternoon. An additional defendant is already in state custody in New York on other charges, and the two remaining defendants, Bing Lin and Ling Fu Shi, are at large.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, the defendants used classic cyber-crime techniques of computer intrusions and accessing carding websites to obtain account numbers and then rake in millions of dollars through shopping sprees funded by counterfeit credit cards created with the stolen personal account numbers. Today’s arrests are a testament to our continued commitment to prosecuting cyber and identity theft crimes and holding the perpetrators of them to account.”

U.S. Secret Service Special Agent-in-Charge Steven G. Hughes said: “Today’s cyber criminals are increasingly targeting the personal and financial information of ordinary citizens, and the proprietary information of companies engaged in e-commerce. In order to combat emerging cyber threats, the U.S. Secret Service has adapted our investigative techniques and implemented a variety of innovative, operational capabilities. The U.S. Secret Service will continue to cooperate with partners from the Drug Enforcement Administration, Homeland Security Investigations, and the U.S. Attorney’s Office in the Southern District of New York in order to prevent further online, criminal activity.”

According to the allegations in the Indictment and Complaint unsealed today in Manhattan federal court:

From at least June 2013 through December 2013, the defendants and their co-conspirators obtained stolen credit/debit card information that had been obtained through computer intrusions and “carding” websites, which are Internet-based forums where users sell and exchange stolen credit and debit card information. Using the stolen account information, they manufactured counterfeit credit/debit cards that were encoded with the stolen account information and embossed with the names of “shoppers”—i.e., co-conspirators responsible for making unauthorized purchases with the counterfeit cards.

Other members of the conspiracy acted as “drivers,” who coordinated teams of “shoppers” and transported them to retail stores located throughout the country, including Texas, North Carolina, Virginia, Pennsylvania, and New Jersey. The “shoppers” were given dozens of counterfeit credit/debit cards and used them to make purchases of retail items, including gift cards, electronics, cosmetics, clothing, and other merchandise worth thousands of dollars. To convert these items to cash, the defendants then transported the goods to New York and California, where they were sold to co-conspirators who, in turn, sold the items or had others exchange them for refunds.

As part of the scheme, the defendants and their co-conspirators obtained stolen account information for more than 1,000 credit/debit card accounts and used that stolen information to make, or attempt to make, more than $2 million in unauthorized purchases.

The defendants, who all reside in Flushing, Queens, are each charged with one count of conspiracy to commit access device fraud, which carries a maximum penalty of seven-and-a-half years in prison, and one count of aggravated identity theft, which carries a mandatory sentence of two years in prison.

A chart identifying the defendants’ ages and residences is attached.

Mr. Bharara praised the outstanding investigative work of the Secret Service. He also thanked the Drug Enforcement Administration for its assistance during the investigation.

This case is being handled by the Office’s Complex Frauds Unit. Assistant U.S. Attorneys Timothy T. Howard and Andrew C. Adams are in charge of the prosecution.

The charges contained in the Indictment and Complaint are merely accusations and the defendants are presumed innocent unless and until proven guilty.

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U.S. v. Ze Xi Qiu, et al. Indictment
U.S. v. Yichao Chen, et al. Complaint

Preet Bharara, the United States Attorney for the Southern District of New York, announced that ADEM ARICI was sentenced today in Manhattan federal court by Chief United States District Judge Loretta A. Preska to five years in prison for his role in a long-running tax fraud conspiracy in which more than $50 million in gross receipts from six gourmet food markets in New York, New Jersey, and Connecticut was hidden from federal, state, and local tax authorities. ARICI was one of the leaders of the scheme and was one of the two of the nine defendants charged in the case with ownership interests in all six markets. ARICI pled guilty on June 4, 2013, before U.S. Magistrate Judge Paul E. Davison to one count of conspiracy to commit tax and fraud offenses, four counts of subscribing to false and fraudulent federal personal income tax returns, nine counts of aiding and assisting in the preparation of false and fraudulent federal corporate, partnership, and payroll tax returns, and one count of witness tampering in connection with a federal investigation of individuals engaging in prohibited transactions in which a Cuban national had an interest.

Manhattan U.S. Attorney Preet Bharara stated: “Those who cheat on their taxes impose an unfair burden on everyone else who dutifully pay their fair share. Adem Arici used the cover of his popular, gourmet markets to engage in tax and other fraud. Today, he learned the price he must pay for his crimes.”

According to the Indictment and statements made during court proceedings:

ARICI had an ownership interest and played an active management role in the following gourmet food markets (the “Markets”):

• Zeytuna, also known as Idaho Farmers Market, Inc., located at 59 Maiden Lane, New York, New York.
• The Amish Market, also known as Potato Farms LLC, located at 53 Park Place, New York, New York.
• Zeytinia Gourmet, also known as Forest Market LLC, located at 56 Maple Street, Croton-on-Hudson, New York.
• Zeytinia Fine Food Store, also known as Oakland Fine Food, Inc., located at 350 Ramapo Valley Road, Oakland, New Jersey.
• Zeytinia Fine Food Store, also known as Zeytinia LLC, located at 2801 Pacific Avenue – Units 203-204, Atlantic City, New Jersey.
• Zeytinia Gourmet Market, also known as Wilton Farms LLC, located at 14 Danbury Road – Suite 11, Wilton, Connecticut.

The Markets’ customers typically paid for their purchases with either cash or credit cards. Credit card payments, and on occasion a small portion of the cash receipts, were deposited into bank accounts maintained by each particular Market. The remaining cash was diverted from the books and records of the Markets. The owners of the Markets used this cash to pay business expenses, including cash payroll, as well as to line their own pockets. They paid numerous employees, including undocumented foreign citizens, in cash. The owners of the Markets failed to withhold and pay to the IRS the withheld payroll taxes, and caused the preparation and filing with the IRS of forms that falsely and fraudulently understated the true salaries paid to employees. In many cases, they failed to report the salaries of employees entirely.

The cash that was left over after paying business expenses was divided up among the owners of the Markets for their own personal uses. The owners of the Markets maintained a “second set of books” and other records that recorded the true income and expenses of the Markets and reflected the cash skimmed from each of the Markets. These books showed that the owners of the Markets failed to report in excess of $50 million in gross receipts during the years 2004 through 2009.

In addition to depriving federal, state, and local governments of approximately $5 million in corporate, payroll, and sales taxes, ARICI himself avoided paying over $1 million in personal income taxes.

With respect to the witness tampering count, on or about November 18, 2011, ARICI counseled an individual with whom he had traveled to Cuba unlawfully to falsely tell law enforcement agents with the Department of Homeland Security, among other things, that the individual did not travel to Cuba, did not know ARICI, and had not met with ARICI in Cuba.

In addition to the prison term imposed on ARICI, 51, of Easton, Connecticut, Chief Judge Preska ordered ARICI to forfeit $7 million and to serve three years of supervised release.

On September 12, 2013, co-defendant Jody Vitale was sentenced to time served followed by two years of supervised release, and ordered to forfeit $354,166. On October10, 2013, Josefina Caraballo was sentenced to one year of probation, and ordered to forfeit $41,331. Defendants Omer Ipek and Atilla Yayla are fugitives. All other defendants are awaiting sentencing.

Mr. Bharara praised the outstanding efforts of the Internal Revenue Service, Criminal Investigation, and the U.S. Immigration and Customs Enforcement’s Homeland Security Investigations.

The case is being handled by the Office’s White Plains Division. Assistant U.S. Attorneys Lee Renzin and Perry A. Carbone are in charge of the prosecution.

The charges contained in the Indictment against the fugitive defendants remain pending and are merely accusations. Those defendants are presumed innocent unless and until proven guilty.

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that LOUIS TOMASETTA, the founder and former CEO of Vitesse Semiconductor Corporation (“Vitesse”), a publicly-traded company, and EUGENE HOVANEC, the former Chief Financial Officer and Vice President of Vitesse, were sentenced today in Manhattan federal court to three years of probation for conspiring to destroy, alter, or falsify records relating to Vitesse’s April and October 2001 stock option grants with the intent to obstruct a contemplated investigation by the U.S. Securities and Exchange Commission (“SEC”). TOMASETTA and HOVANEC pled guilty in August 2013, and were sentenced today by U.S. District Judge Jed S. Rakoff.

According to the Superseding Information and evidence in court proceedings:

During 2001 to 2006, Vitesse’s Board of Directors, specifically the Compensation Committee of the Board (the “Compensation Committee”), administered shareholder-approved stock options plans (the “Plans”) and had the authority under the Plans to grant stock option awards. Vitesse’s public filings for the 2001 to 2005 year-end period indicated that the exercise price of all stock options was at least equal to the fair market value of Vitesse’s stock price on the date of the grant. During this time period, TOMASETTA, HOVANEC, and others generally initiated and oversaw the option grant process.

In November 2005, Yatin Mody, then Vitesse’s Chief Financial Officer, contacted Vitesse’s then-outside law firm (“Law Firm-1”) concerning a press inquiry about Vitesse’s stock option practices. After reviewing documents related to stock option grants in April 2001 and October 2001, Law Firm-1 advised Mody and TOMASETTA that it had concerns about those option grants, and specifically concern about whether Vitesse had properly accounted for these option grants. For example, Vitesse’s April 12, 2001, Compensation Committee meeting minutes memorialized option grants with an exercise price at the April 6, 2001, closing price of Vitesse’s stock, which was lower than the April 12 closing price. These minutes raised a question about whether the options were in fact granted on the day of the meeting (April 12) or on the earlier date (April 6), and potentially affected the accounting treatment of the options in a way that would require adjustments to Vitesse’s financial reports. Similarly, the Compensation Committee meeting minutes from October 25, 2001, memorialized option grants with an exercise price at the October 2, 2001, closing price, which was lower than the October 25 closing price.

In late November 2005, after discussions with TOMASETTA and HOVANEC, Mody created minutes of the Compensation Committee meetings allegedly held on April 6, 2001, and October 2, 2001. Mody then provided copies of these minutes to Law Firm-1, and specifically advised Law Firm-1 that they were prepared in November 2005 to reflect what had actually occurred at those meetings.

Tomasetta and Hovanec Alter and Fabricate Records Regarding the 2001 Option Grants

On March 18, 2006, the Wall Street Journal published an article that raised questions about stock option practices at various companies, including Vitesse. Following the article, Law Firm-1 raised concerns to Vitesse’s directors and management, including TOMASETTA and HOVANEC, about Vitesse’s option grants and specifically about the fact that Compensation Committee minutes had been created years after the fact. Law Firm-1 informed TOMASETTA and HOVANEC that because of the Wall Street Journal article, there was a significant possibility of an SEC investigation into Vitesse’s option practices and disclosures.

At a meeting on April 11, 2006, Law Firm-1 also advised Vitesse’s directors and management, including TOMASETTA and HOVANEC, that Mody’s after-the-fact creation of Compensation Committee meeting minutes raised questions about whether the meetings had actually occurred. That same day, Vitesse’s Audit Committee retained a law firm (“Law Firm-2”) to conduct an independent investigation into Vitesse’s stock option grants. Law Firm-2 requested that Vitesse provide it with access to the computer used by the Vitesse employee who was responsible for actually typing the minutes of the Compensation Committee meetings when they occurred (the “Assistant’s Computer”).

With an understanding that Law Firm-2 would access the Assistant’s Computer, on April 12, 2006, TOMASETTA, HOVANEC, and Mody created documents that purported to be minutes of meetings of Vitesse’s Compensation Committee on April 6, 2001 and October 2, 2001, authorizing option grants at those meetings. After creating these documents, they transferred electronic copies of the documents containing the two recently created sets of minutes to the Assistant’s Computer and, in an effort to make it appear that the minutes were created at an earlier time, TOMASETTA, HOVANEC, and Mody reset the computer’s internal clock to backdate the creation date of these purported minutes. TOMASETTA and HOVANEC engaged in this action to obstruct Law Firm-2’s internal investigation, knowing that there was likely to be an SEC investigation of Vitesse’s option grant practices and disclosures.

In addition to their sentences, TOMASETTA, 64, of Ojai, California, and HOVANEC, 61, of Westlake Village, California, were each fined $30,000.

Yatin Mody, 50, of Westlake Village, California, pled guilty in December 2010, before U.S. District Judge John G. Koeltl, to securities fraud, making false entries in the financial records of a corporation, and conspiracy, pursuant to a cooperation agreement with the Government. Mody awaits sentencing.

Mr. Bharara praised the investigative work of the U.S. Postal Inspection Service and the Criminal Investigators of the U.S. Attorney’s Office, which jointly investigated this case. He also thanked the SEC for its assistance.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.StopFraud.gov.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys John J. O’Donnell, Katherine R. Goldstein, and David I. Miller are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that MATTHEW TAYLOR, formerly a vice president at Goldman, Sachs & Co. (“Goldman Sachs”) and a trader on Goldman Sachs’s Capital Structure Franchise Trading (“CSFT”) desk, was sentenced today in Manhattan federal court to nine months in prison for fraudulently amassing and concealing an approximately $8.3 billion trading position in an account that TAYLOR managed at Goldman Sachs. TAYLOR pled guilty in April 2013 to one count of wire fraud in connection with the scheme, and was sentenced by U.S. District Judge William H. Pauley III.

According to the Information to which TAYLOR pled guilty, and statements made in court proceedings:

While employed at Goldman Sachs as a vice president, TAYLOR was a member of the CSFT desk and was responsible for a trading account called the CSFT Equity Volatility Portfolio (the “Trading Account”), which included trading in equity derivatives products. Among the products that TAYLOR traded on the CSFT desk were Standard & Poor’s E-mini futures contracts (“S&P E-mini futures”), which are futures contracts tied to the S&P 500 stock index. TAYLOR traded in S&P E-mini futures using an electronic trading platform called “Globex.”

In November 2007, TAYLOR had lost a significant portion of the profits that he had accumulated in the Trading Account earlier that year. As a result, he was instructed by his supervisors to reduce the overall risk in the Trading Account. These supervisors had previously informed TAYLOR and other traders on the CSFT desk about risk limits for the CSFT desk and acceptable risk levels and trading limits.

Despite these instructions to reduce the risk in the Trading Account, on December 13, 2007, TAYLOR significantly increased the notional value of his long position in S&P E-mini futures by entering a series of electronic trades through Globex. In so doing, he amassed a position that far exceeded all trading and risk limits set by Goldman Sachs, not only for individual traders, but for the entire CSFT desk. TAYLOR increased the profitability of the Trading Account in order to restore his professional reputation within Goldman Sachs and to increase his performance-based compensation.

At the same time that TAYLOR increased his S&P E-mini futures position, he actively concealed this position from others at Goldman Sachs. He recorded multiple false entries for S&P E-mini futures trades that he never made in a manual trade entry system (the “Manual Trade Entry System”), which was typically intended to be used by traders for recording trades that – unlike S&P E-mini futures – could not be executed through the Globex electronic trading platform. TAYLOR recorded multiple false trading entries in the Manual Trade Entry System that were in the opposite direction of the electronic trades he made in the Trading Account. Where TAYLOR purchased S&P E-mini futures in the Trading Account via Globex, he then manually entered fictitious S&P E-mini futures sales in the Manual Trade Entry System. The purpose of entering these fabricated trades was to conceal and understate the true size of the S&P E-mini futures position within the Trading Account, as the fictitious sales functioned to offset portions of TAYLOR’s actual purchases.

In addition, at the end of the trading day on December 13, 2007, TAYLOR prepared a false profit and loss report for the Trading Account (the “December 13, 2007, P&L Report”) that served to conceal his actual oversized position and market risk. He then forwarded the December 13, 2007, P&L Report to his supervisors and others at Goldman Sachs. By the morning of December 14, 2007, however, various employees at Goldman Sachs had detected a significant discrepancy between TAYLOR’s actual position in the Trading Account and what TAYLOR had falsely reported in the December 13, 2007, P&L Report. In response to questioning from these employees, TAYLOR made various false statements about his position and risk in the Trading Account. His fraudulent scheme resulted in significant losses to Goldman Sachs.

In addition to his prison term, TAYLOR, 34, of West Palm Beach, Florida, was also sentenced to three years of supervised release and ordered to pay $118 million in restitution.

The United States Attorney’s Office for the Southern District of New York first learned of the Taylor matter on November 10, 2012. Less than five months later, on April 3, 2013, Taylor was charged in an Information and pled guilty.

Mr. Bharara praised the investigative work of the Federal Bureau of Investigation. He also thanked the U.S. Commodity Futures Trading Commission. This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.stopfraud.gov.

The case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Steve Lee is in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that the United States has filed a lawsuit against EAST RIVER HOUSING CORP., (“EAST RIVER”), a housing cooperative located at 573 Grand Street in Manhattan, for violating the Fair Housing Act. The Government alleges that EAST RIVER discriminated against a disabled tenant of the cooperative, Stephanie Aaron, by failing to permit a reasonable accommodation of the tenant’s psychiatric disability.

Manhattan U.S. Attorney Preet Bharara said: “The Fair Housing Act plainly allows tenants with disabilities to keep assistance animals, and we will not hesitate to file suit to combat discrimination in this area.”

As alleged in the Complaint filed in Manhattan federal court:

Aaron suffers from chronic major depression, anxiety, and post-traumatic stress disorder. In August 2012, Aaron took in a stray dog, and, within a few days, began to notice improvement in the symptoms of her lifelong mental illness. A few weeks later, EAST RIVER ordered Aaron to remove the dog. Aaron requested that EAST RIVER allow her to keep the dog as a reasonable accommodation of her psychiatric disability, submitting a psychiatrist’s letter in support of her request.

EAST RIVER did not respond to the request for reasonable accommodation and instead gave Aaron a deadline to vacate her apartment. Aaron then submitted another request for reasonable accommodation, again attaching the letter from her psychiatrist. EAST RIVER denied this request. A few days later, Aaron was notified that EAST RIVER had commenced an eviction proceeding against her. Aaron’s attorney then sent a third reasonable accommodation request to EAST RIVER, attaching the psychiatrist’s letter for a third time. Two months later, Aaron’s psychiatrist and psychologist sent additional letters to EAST RIVER. EAST RIVER did not respond to those letters. Instead, it continued the eviction proceeding against Aaron.

Aaron initially filed an administrative complaint with the Department of Housing and Urban Development (“HUD”). Upon investigation, HUD determined that there was reasonable cause to believe that the Fair Housing Act had been violated. Thereafter, EAST RIVER elected pursuant to the Fair Housing Act to have HUD’s determination resolved in federal court.

In these circumstances, the Fair Housing Act authorizes the Department of Justice to commence an action in United States District Court on behalf of Aaron. The Complaint seeks declaratory, injunctive, and monetary relief for Aaron.

Mr. Bharara thanked HUD for its efforts in the investigation.

The case is being handled by the Office’s Civil Rights Unit. Assistant U.S. Attorney Elizabeth M. Tulis is in charge of the case.

U.S. v. East River Housing Corp. Complaint 13 Civ 8650

Preet Bharara, the United States Attorney for the Southern District of New York, and George Venizelos, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), today announced charges against 49 defendants for participating in a widespread fraud scheme from 2004 to August 2013 to illegally obtain nearly half a million dollars in Medicaid benefits. Each of the defendants charged in the Complaint unsealed today is a current or former Russian diplomat or the spouse of a diplomat employed at either the Russian Mission to the United Nations (the “Mission”), the Russian Federation Consulate General in New York (the “Consulate”), or the Trade Representation of the Russian Federation in the USA, New York Office (the “Trade Representation”). The Complaint alleges that each of the defendants and their unnamed co-conspirators participated in a widespread scheme to illegally obtain Medicaid benefits for prenatal care and related costs by, among other things, falsely underreporting their income or falsely claiming that their child was a citizen of the United States.

Manhattan U.S. Attorney Preet Bharara said: “Diplomacy should be about extending hands, not picking pockets in the host country. Here, as alleged, a multitude of Russian diplomats and their spouses ran a scam on a health care system designed to help Americans in need. As the Complaint alleges, the scam exploited a weakness in the Medicaid system, and the charges expose shameful and systemic corruption among Russian diplomats in New York.”

FBI Assistant Director-in-Charge George Venizelos said: “The United States Government values its long-standing relationship with foreign diplomats and diplomatic establishments for cooperation on many issues. Unfortunately, as detailed in the complaint, some Russian officials in New York allowed these defendants to take advantage of that relationship. Motivated by greed and the purchase of high-end luxury items, these defendants allegedly perpetrated a fraud to illegally obtain Medicaid benefits to which they were not entitled. The unsealing of the complaint today highlights the criminal activities of these defendants and reminds the public that health care fraud remains an ongoing problem in our country. The FBI and our law enforcement partners, including the New York City Human Resources Administration and the New York State Department of Health, are committed to preventing and prosecuting health care fraud at all levels.”

According to the allegations in the Complaint unsealed today in Manhattan federal court:

Medicaid is a largely federally funded program in the United States designed to assist low-income families afford health care. In New York State, the Department of Health administers the Medicaid program, and the New York City Human Resources Administration oversees the program and processes applications in New York City. In New York State, pregnant women can receive immediate prenatal care following a preliminary assessment of the pregnant woman’s, and, if applicable, her spouse’s, income. If the pregnant woman provides an income level that is higher than the Medicaid eligibility threshold, the provider will generally not process the Medicaid application. Proof of United States citizenship is not required for a pregnant woman to receive Medicaid benefits because the unborn child is presumed to acquire United States citizenship by virtue of being born in the United States. Once completed, the pregnant woman is entitled to Medicaid benefits pursuant to the original application until the 60th post-partum day, and the newborn child is entitled to benefits on the mother’s initial application until the child’s first birthday. Diplomats, their spouses and children are generally not entitled to Medicaid benefits except in cases of emergency.

While in the United States, the individuals employed by the Mission, Consulate, and Trade Representation are paid a salary by the Russian government, which is not subject to United States federal, state, or local taxes. Employees of the Mission and Consulate generally live in housing, the vast majority of which is paid for by the Russian government. The Mission and Consulate historically have also paid for the medical expenses of their employees, including hospital and doctor bills, as well as dental expenses. Each of the defendants named in the Complaint is a Russian diplomat who works or worked at the Mission, Consulate, or Trade Representation, or was married to such an individual. As a result of an international convention among multiple nations and a bilateral agreement between the United States and Russia, children born in the United States to Russian diplomats generally do not acquire United States citizenship.

The investigation revealed the widespread submission of falsified applications for Medicaid benefits associated with medical costs for prenatal care, birth, and young children by the defendants, which enabled the defendants to obtain Medicaid benefits that they were not otherwise entitled to receive. Approximately $1,500,000 in fraudulently received benefits were obtained by the defendants and dozens of other co-conspirators not named in the Complaint. In general, the defendants underreported their income to an amount below or at the applicable Medicaid eligibility level in order to qualify for Medicaid benefits. In support of the underreported income, the defendants generally submitted letters signed by employees of the Mission, Consulate, or Trade Representation, purporting to corroborate that the falsely underreported income was the true income amount. The defendants’ true income was often hundreds, if not thousands, of dollars more per month than what was falsely reported to Medicaid. Moreover, before, during, and after the time that the defendants received Medicaid benefits, several of the defendants opened credit card accounts in which they reflected salaries thousands of dollars higher than they reported to Medicaid.

In addition, one set of defendants failed to disclose their marriage on their initial Medicaid application – falsely claiming that they were brother and sister instead of husband and wife. As a result, those defendants failed to disclose any income the husband earned from the Mission. Because of their lies, they received almost $21,000 in Medicaid income to which they were not entitled. Three other defendants falsely claimed that their children – Russian nationals residing in the United States pursuant to visas issued by the Department of State reflecting their Russian citizenship – were citizens of the United States in order to obtain Medicaid benefits for their children. To support these lies, a United States social security card was provided for one application, and both a United States Social Security Card and a birth certificate issued by the New York City Department of Mental Health and Hygiene was provided in support of another application.

Moreover, before, during, and after the time that the defendants applied for and received hundreds of thousands of dollars in Medicaid benefits, they spent tens of thousands of dollars on luxury items, including cruise vacations and purchases such as watches, shoes, and jewelry, at stores such as Tiffany & Co., Jimmy Choo, Prada, Bloomingdale’s, and Burberry.

For example, TIMUR SALOMATIN, a former diplomat at the Mission, and his wife, NAILYA BABAEVA, applied for Medicaid pregnancy benefits in November 2010 and represented SALOMATIN’s salary to be $3,000 a month, and submitted a renewal application in June 2011 in which they claimed that SALOMATIN made $4,400 a month. In support of both applications, they submitted a letter signed by MIKHAIL KORNEEV, formerly a Counselor at the Mission, in which KORNEEV falsely confirmed the underreported income amount. However, beginning in June 2011, SALOMATIN began to receive direct payroll deposits from the Russian government into his bank account. Between June 2011 and December 2011, SALOMATIN received an average of $5,160 a month – over $2,000 more than he reported to Medicaid on the initial application. In February 2011, shortly after SALOMATIN and BABAEVA applied for Medicaid benefits, and shortly before they applied for renewal benefits, SALOMATIN applied for a credit card and represented his salary to be $8,333 a month. In December 2011, while BABAEVA’s and SALOMATIN’s children continued to receive Medicaid benefits, SALOMATIN represented his salary to be $60,000 a year, or $5,000 a month. During the period between February 2012 and December 2012, while their children continued to receive Medicaid benefits, SALOMATIN and BABAEVA made and paid for over $50,000 in purchases, including over $8,400 from Apple, and over $10,000 from retailers including, among others, Prada and Bloomingdale’s. BABAEVA and her children obtained almost $31,000 in Medicaid benefits to which they were not entitled.

ANDREY ARTASOV and NATALIYA ARTASOVA falsely represented to Medicaid that ARTASOV made only $2,900 a month (or approximately $34,800 a year) in salary in November 2008. In March 2007 – over a year and a half prior to ARTASOVA applying for Medicaid, ARTASOV reported to a credit card company that he made $60,000 a year in salary. In 2008, the year that ARTASOVA received Medicaid benefits, ARTASOV and ARTASOVA made and paid for over $48,000 in purchases on this credit card, spending thousands of dollars at Swarovski and Apple, among other things.

Each of the defendants was charged with one count of conspiracy to commit health care fraud and one count of conspiracy to steal government funds and make false statements relating to health care matters, which carry maximum sentences of ten years and five years in prison, respectively.

Of the 49 defendants, 11 are currently in the United States. Five of those individuals are diplomats working at the Mission. Five of those individuals are the spouses of the diplomats. One is currently employed at the Russian Federation’s embassy in Washington, D.C., but at the time of the charged offenses, was employed at the Consulate. The remaining 38 no longer reside in the United States.

Manhattan U.S. Attorney Bharara praised the investigative work of the FBI, and thanked the New York City Human Resources Administration and the New York State Department of Health for their assistance in this investigation.

The Office’s Public Corruption and Terrorism and International Narcotics Units are handling the case. Assistant U.S. Attorneys Rebecca Ricigliano, Shane Stansbury, and Ian McGinley are in charge of the prosecution.

The charges contained in the Complaint are merely an accusation and the defendants are presumed innocent unless and until proven guilty.

Kuleshov, Mikhail et al. 13 MAG 2711 Complaint

Preet Bharara, the United States Attorney for the Southern District of New York, announced that NOAH SIEGEL pled guilty today in Manhattan federal court to transmission of wagering information in interstate commerce. His co-defendants MOSHE ORATZ and JONATHAN HIRSCH pled guilty to the same offense earlier this week on December 3 and 4, 2013, respectively. An additional co-defendant, MICHAEL SALL, also pled guilty on December 4, 2013, to interstate travel in aid of an unlawful activity – illegal gambling. SIEGEL, ORATZ, HIRSCH, and SALL were charged in April 2013 along with 30 other alleged members and associates of two Russian-American organized crime enterprises in an indictment that included racketeering, money laundering, extortion, and various gambling offenses. All four defendants pled guilty before U.S. District Judge Jesse M. Furman.

Manhattan U.S. Attorney Preet Bharara said: “Noah Siegel, Moshe Oratz, Jonathan Hirsch, and Michael Sall are the latest defendants convicted for their roles in this highly lucrative, underground gambling operation. Their guilty pleas bring us ever closer to bringing each and every person involved to justice.”

According to the Indictment, other documents filed in Manhattan federal court and statements made at various proceedings in this case, including today’s guilty plea:

Illya Trincher and Hillel Nahmad, SIEGEL, ORATZ, and HIRSCH’s co-defendants, ran a high-stakes illegal gambling business that catered primarily to millionaire and billionaire clients. Their business utilized several online gambling websites that operated illegally in the United States to generate tens of millions of dollars of sports bets each year. SIEGEL was a partner of Trincher and Nahmad in their sportsbook and helped select wagers and handicap bets. ORATZ assisted Trincher and Nahmad’s sportsbook by providing them with accounts at illegal online betting websites, and HIRSCH worked for Trincher and Nahmad’s sportsbook as an accountant and bookkeeper.

The Taiwanchik-Trincher Organization, operated by Anatoly Golubchik and Vadim Trincher, is a nationwide criminal enterprise with strong ties to Russia and Ukraine. The leadership of the organization ran an international sportsbook that catered primarily to Russian oligarchs living in Russia and Ukraine and throughout the world. The Taiwanchik-Trincher Organization laundered tens of millions of dollars in proceeds from the gambling operation from Russia and the Ukraine through shell companies and bank accounts in Cyprus, and from Cyprus into the United States. Once the money arrived in the United States, it was either laundered through additional shell companies or invested in seemingly legitimate investments, such as hedge funds or real estate. SALL helped Golubchik and Trincher invest the proceeds of their illegal international gambling activities into various domestic investments.

SIEGEL, 31, of New York, New York, faces a maximum of two years in prison and one year of supervised release. As part of his plea agreement, SIEGEL agreed to forfeit $400,000. He is scheduled to be sentenced by Judge Furman on April 10, 2013 at 3:45 p.m.

ORATZ, 38, of Brooklyn, New York, faces a maximum of two years in prison and one year of supervised release. As part of his plea agreement, ORATZ, agreed to forfeit $325,000. He is scheduled to be sentenced by Judge Furman on April 8, 2014 at 3:00 p.m.

HIRSCH, 30, of New York, New York, faces a maximum of two years in prison and one year of supervised release. As part of his plea agreement, HIRSCH agreed to forfeit $80,600. He is scheduled to be sentenced by Judge Furman on April 10, 2013 at 3:00 p.m.

SALL, 68, of Sunny Isles Beach, Florida, faces a maximum of five years in prison and three years of supervised release. As part of his plea agreement, SALL agreed to forfeit $1,300,000. He is scheduled to be sentenced by Judge Furman on April 9, 2014 at 3:00 p.m.

ORATZ, HIRSCH, SIEGEL, and SALL are the 20th, 21st, 22nd, and 23rd defendants in this case to plead guilty. The defendants who have pled to date have agreed to forfeit, in total, more than $68,000,000.00. The following defendants previously pled guilty and have been or await sentencing:

• Bryan Zuriff pled guilty to gambling charges on July 26, 2013 and was sentenced on November 25, 2013;
• William Barbalat pled guilty to gambling charges on August 14, 2013;
• Kirill Rapoport pled guilty to gambling charges on August 16, 2013;
• Edwin Ting and Justin Smith pled guilty to gambling charges on September 4, 2013;
• Dmitry Druzhinsky and David Aaron pled guilty to gambling charges on October 4, 2013;
• Alexander Zaverukha pled guilty to gambling charges on October 10, 2013;
• Nicholas Hirsch pled guilty to conspiring to commit wire fraud on October 16, 2013;
• Anatoly Shteyngrob pled guilty to conspiring to commit money laundering on October 17, 2013;
• Yugeshwar Rajkumar pled guilty to gambling charges on October 18, 2013;
• Stan Greenberg pled guilty to conspiring to commit racketeering on October 22, 2013;
• Arthur Azen pled guilty to conspiring to commit money laundering and conspiring to collect extensions of credit by extortionate means on November 5, 2013;
• Hillel Nahmad pled guilty to gambling charges on November 12, 2013;
• Vadim Trincher pled guilty to conspiring to commit racketeering on November 14, 2013;
• Eugene Trincher pled guilty to gambling charges on November 14, 2013;
• Anatoly Golubchik pled guilty to conspiring to commit racketeering on November 15, 2013;
• Illya Trincher pled guilty to gambling charges on November 15, 2013; and
• Ronald Uy pled guilty to structuring financial transactions on November 25, 2013.

Mr. Bharara praised the investigative work of the Federal Bureau of Investigation, the New York City Police Department, and the Internal Revenue Service.

The case is being prosecuted by the Office’s Organized Crime Unit. Assistant U.S. Attorneys Harris M. Fischman, Joshua A. Naftalis, Peter Skinner, and Kristy J. Greenberg of the Organized Crime Unit are in charge of the prosecution. Assistant U.S. Attorneys Alexander Wilson and Christine Magdo of the Office’s Asset Forfeiture Unit are responsible for the forfeiture aspects of the case.

U.S. v. Alimzhan Tokhtakhounov, et al. Indictment

Kuleshov, Mikhail et al. 13 MAG 2711 Complaint

Preet Bharara, the United States Attorney for the Southern District of New York, Robert G. Dreher, the Acting Assistant Attorney General for the Environment and Natural Resources Division of the Department of Justice, and Dan Ashe, the Director of the U.S. Fish and Wildlife Service, announced today that QIANG WANG, a/k/a Jeffrey Wang, a New York antiques dealer, was sentenced in Manhattan federal court to 37 months in prison for his role in a conspiracy to smuggle Asian artifacts made from rhinoceros horns and ivory and violate wildlife trafficking laws. WANG was arrested in February 2013 as part of “Operation Crash,” a nation-wide crackdown on the illegal trafficking in rhinoceros horns, for his role in smuggling libation cups carved from rhinoceros horns from New York to China. He pled guilty in August 2013 and was sentenced today by U.S. District Judge Katherine B. Forrest.

Manhattan U.S Attorney Preet Bharara said: “With his sentence today, Qiang Wang is held accountable for his role in feeding the flourishing black market for artifacts made from endangered species. This Office will continue its work to prosecute those who contribute to the illegal wildlife trade, and to uphold the rules designed to protect wildlife.”

Acting Assistant Attorney General Robert Dreher said: “Wang and others like him involved in smuggling these artifacts made from rhino horn and ivory have helped to create a market for wildlife products that is not sustainable.

This is an active and ongoing investigation that is designed to send a clear message to buyers and sellers that we will vigorously investigate and prosecute those who are involved in this devastating trade.”

U.S. Fish and Wildlife Service Director Dan Ashe said: “We’re reaching a tipping point, where the unprecedented slaughter of rhinos and elephants happening now threatens the viability of these iconic species’ wild populations in Africa. This slaughter is fueled by illegal trade, including that exposed by Operation Crash. We will continue to work relentlessly across the United States government and with our international partners to crack down on poaching and wildlife trafficking.”

According to the Information, WANG’s guilty plea, and statements made during court proceedings:

In China, there is a tradition dating back centuries of intricately carving rhinoceros horn cups. Drinking from such a cup was believed by some to bring good health, and antique carvings are highly prized by collectors. Libation cups and other ornamental carvings are particularly sought after in China and in other Asian countries, as well as in the United States. The escalating value of such items has resulted in an increased demand for rhinoceros horn that has helped fuel a thriving black market, including fake antiques made from recently, and often illegally, hunted rhinoceros.

Between approximately January 2011 and February 2013, WANG conspired with at least two others to smuggle objects containing rhinoceros horn and elephant ivory out of the United States knowing that it was illegal to export such items without required permits. Due to their dwindling populations, all rhinoceros and elephant species are protected under international trade agreements. WANG made and used false United States Customs Declarations for the packages containing rhinoceros horn and ivory objects in order to conceal the true contents of the packages, and did not declare them to the U.S. Fish & Wildlife Service U.S. Customs and Border Protection as required under U.S. law and international trade agreements.

Rhinoceros are an herbivore species of prehistoric origin and one of the largest remaining mega-fauna on earth. They have no known predators other than humans. All species of rhinoceros are protected under United States and international law. Since 1976, trade in rhinoceros horn has been regulated under the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), a treaty signed by over 170 countries around the world to protect fish, wildlife, and plants that are or may become imperiled due to the demands of international markets.

Operation Crash is a continuing investigation being conducted by the Department of the Interior’s Fish and Wildlife Service (FWS), in coordination with other federal and local law enforcement agencies including U.S. Immigration and Customs Enforcement’s Homeland Security Investigations. A “crash” is the term for a herd of rhinoceros. Operation Crash is an ongoing effort to detect, deter and prosecute those engaged in the illegal killing of rhinoceros and the unlawful trafficking of rhinoceros horns

In sentencing WANG, Judge Forrest said that his behavior helped “create and sustain a marketplace for goods made from endangered wildlife.” Judge Forrest also said that WANG’s conduct was “illegal and extremely troubling.”

In addition to the prison term, Judge Forrest ordered WANG, 34, of Flushing, New York, to forfeit certain ivory goods in his possession, and banned him from all future trade in elephant ivory and rhino horn. Wang was also sentenced to serve a term of three years of supervised release.

Mr. Bharara and Mr. Dreher commended the U.S. Fish and Wildlife Service and the U.S. Immigration and Customs Enforcement’s Homeland Security Investigations for their outstanding work in this investigation. They also thanked the New York State Department of Environmental Conservation Division of Law Enforcement for their assistance.

The case is being handled by the Office’s Complex Frauds Unit. Assistant United States Attorney Janis M. Echenberg and Senior Counsel with the Environmental Crimes Section of the United States Department of Justice Richard A. Udell are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, and James T. Hayes, Jr., the Special Agent-in-Charge of the New York Field Office of the U.S. Immigration and Customs Enforcement’s (“ICE”) Homeland Security Investigations (“HSI”), announced that KEVIN VENTURA was found guilty yesterday in Manhattan federal court of murder in connection with an arson and a marijuana distribution conspiracy, two counts of murder in connection with a marijuana distribution conspiracy, conspiracy to commit murder-for-hire, and murder-for-hire. VENTURA was convicted after a twelve-day jury trial before U.S. District Judge John G. Koeltl.

Manhattan U.S. Attorney Preet Bharara said: “This case is a prime example of how federal resources can successfully be brought to bear on ‘cold case’ murders in New York. We are proud to work with our partners at ICE’s Homeland Security Investigations and the NYPD to bring justice to victims and their families after so many years of waiting.”

ICE HSI Special Agent-in-Charge James T. Hayes, Jr. said: “The defendant in this case protected his drug smuggling empire through violence, including arson and murder, and terrorized New York City neighborhoods for years. The verdict holds the defendant accountable for his crimes and demonstrates HSI's commitment to working with our law enforcement partners in combating violent drug organizations that value profits more than human lives.”

According to the evidence introduced at trial, other proceedings in this case, and documents previously filed in Manhattan federal court:

In the mid-1990s, VENTURA managed the day-to-day operations of his father’s marijuana distribution business in the vicinity of 207th Street and Sherman Avenue in northern Manhattan. On April 11, 1995, VENTURA and a number of his associates in the marijuana business went to a discount store at 3856 10th Avenue that was operating a rival marijuana business, intending to set a fire in the store to shut down the competition. One of VENTURA's associates shot and killed the store clerk, Noel Montanez, while VENTURA set fire to the store.

In the summer of 1996, VENTURA hired two brothers to kill VENTURA’s cousin, Eugene Garrido, in exchange for $10,000, because of a dispute over the family marijuana business. On August 19, 1996, one of the two brothers shot and killed Garrido in the lobby of his apartment building at 34 Bogardus Place in northern Manhattan. A bystander, Carlos Penzo, who attempted to stop the fleeing shooter, was also shot and died from his injuries approximately a week later.

VENTURA, 42, of New York, New York, faces a mandatory minimum sentence of life in prison. He is scheduled to be sentenced by Judge Koeltl on March 14, 2014 at 2:30 p.m.

Mr. Bharara praised the investigative work of ICE HSI and also thanked the New York City Police Department for its assistance in the case.

This case is being prosecuted by the Office’s Violent Crimes Unit. Assistant United States Attorneys Margaret Garnett and Ryan P. Poscablo are in charge of the prosecution.

U.S. v. Kevin Ventura S3 Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that PETER GROMACKI, a U.S. citizen, was sentenced in Manhattan federal court to three months in prison for exporting high-grade carbon fiber to China. GROMACKI pled guilty in July 2013 before United States District Judge Edgardo Ramos to one count of conspiracy to violate the International Emergency Economic Powers Act (“IEEPA”), one count of violating the IEEPA, and one count of making false statements. Judge Ramos also imposed today’s sentence.

According to the Indictment, statements made during GROMACKI’S guilty plea proceeding, and the Government’s sentencing submission:

From at least 2006 through 2012, GROMACKI conspired to transship carbon fiber from the United States to China, including a shipment of U.S.-made, high-grade T-700 carbon fiber. T-700 carbon fiber has applications in aerospace and nuclear engineering. High-grade carbon fiber is particularly well-suited for gas centrifuges used for uranium enrichment.

In order to evade United States restrictions on export of this type of carbon fiber to China, GROMACKI enlisted the help of co-conspirators in Europe and China and made false statements on U.S. customs forms.

GROMACKI, 54, resides in Orange County, New York.

Mr. Bharara praised the investigative work of the New York Offices of the Federal Bureau of Investigation; U.S. Immigration and Customs Enforcement’s Homeland Security Investigations; and the Office of Export Enforcement, Bureau of Industry and Security, of the U.S. Department of Commerce. Mr. Bharara also thanked the U.S. Department of Justice’s National Security Division.

This case is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant U.S. Attorneys Jason P.W. Halperin and Andrea L. Surratt are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that WILSON PAGAN, 27, the founder and top leader of the Latin Kings gang in Newburgh, New York (the “Newburgh Latin Kings”), was sentenced today by U.S. District Judge Cathy Seibel in White Plains federal court to life plus 85 years in prison. PAGAN was convicted of murder; racketeering; conspiracy to distribute crack, cocaine, and heroin; assault, and using and carrying firearms in connection with violent crimes. PAGAN is one of 35 members and associates of the gang who were charged in the case, all of whom have been convicted, 28 of whom have thus far been sentenced.

U.S. Attorney Preet Bharara stated: “Mr. Pagan was a gang leader, and what he led his followers to was a gang member’s life filled with death, blood, guns, drugs, and jail – and for him the gangster life in the street has become the inmate’s life in prison, forever. Gang leaders, members, associates, and wannabes in Newburgh and throughout the Hudson Valley need to understand: We will not tolerate gang violence. You will go to prison for it, potentially for the rest of your life.”

According to the Indictment and evidence presented at trial:

PAGAN founded the Newburgh Latin Kings, and grew the gang from roughly a dozen members in 2008 to more than 50 members and associates by early 2010. On May 6, 2008, PAGAN ordered aspiring gang members to go on a so-called mission, during which they committed a drive-by shooting and killed, mistakenly, Jeffrey Zachary, a 15-year old boy who was an innocent bystander. PAGAN sold crack and heroin, and helped other members and associates of his gang sell drugs, including at spots the Latin Kings controlled, such as the corner of Benkard Avenue and William Street in Newburgh. PAGAN also assaulted rivals of his gang, and carried guns and instructed others to carry guns to protect PAGAN and the Newburgh Latin Kings’ drug turf. In leading the gang, PAGAN recruited and inducted new members, instructed the members how to behave in order to protect and conceal the gang’s criminal activities, and issued orders to gang members to shoot and assault others. PAGAN organized and led gang meetings for this purpose. During one such meeting, according to papers filed with the court, PAGAN told more than 20 assembled gang members: “[W]e don’t even live by rules of society. . . .”

Mr. Bharara thanked the Hudson Valley Safe Streets Task Force for their work on the Latin Kings investigation. The Task Force is led by the Federal Bureau of Investigation (“FBI”), and combines the resources of dozens of law enforcement officers from federal, state, and local agencies and departments, including: agents and officers of the FBI; the U.S. Bureau of Alcohol, Tobacco, Firearms, and Explosives; the City of Newburgh Police Department; Immigration and Customs Enforcement’s Homeland Security Investigations; the Middletown Police Department; the Orange County Sheriff’s Office, and the New York State Police.

The prosecution is being handled by the Office’s White Plains Division. Assistant U.S. Attorneys Benjamin Allee, Abigail Kurland, and Nicholas McQuaid are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, and George Venizelos, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced that SCOT ZARKIEWICZ, the co-founder, President, Chief Executive Officer, Treasurer, and principal owner of SingleClick Systems Corp. (“SingleClick”), a Delaware-incorporated, New Jersey-based software company, pled guilty today in Manhattan federal court to charges arising from a scheme to defraud SingleClick investors. From mid-2009 through June 2013, ZARKIEWICZ solicited several investors to purchase millions of dollars of privately-held SingleClick stock based on fraudulent misrepresentations about the company’s operations and financial performance. ZARKIEWICZ was arrested on these charges on October 9, 2013. He pled guilty today before U.S. District Judge Denise L. Cote.

Manhattan U.S. Attorney Preet Bharara said: “For four years Scot Zarkiewicz told the investors of his software company one lie after another and swindled them out of millions of dollars. But his fraud scheme was ultimately exposed for the sham that it was, and now he will be punished for his crimes.”

Assistant Director-in-Charge George Venizelos said: “Scot Zarkiewicz brought a whole new meaning to cooking the books. He often exaggerated and sometimes totally made up numbers on his company’s balance sheet. Like we’ve seen time and time again, Zarkiewicz ripped off dozens of unwitting victims to fund his lavish lifestyle. Today, Mr. Zarkiewicz finds himself guilty, under his own admission, of these crimes.”

According to the Information filed in this case, statements made during the defendant’s guilty plea, and other court documents:

SingleClick is a privately-held software company that was engaged in the business of providing individuals and businesses with network software products that facilitate content access and network and systems management from any internet-connected device. From mid-2009 through June 2013, ZARKIEWICZ solicited investor contributions to, and caused investors to maintain their investment in, SingleClick based on fraudulent misrepresentations.

Specifically, during the relevant period, ZARKIEWICZ told SingleClick investors, in both oral and written communications, that SingleClick had several large corporate clients, millions of dollars in annual revenue, and millions of dollars in cash in bank and brokerage accounts, when, in truth and in fact, and as ZARKIEWICZ well knew, SingleClick conducted minimal business operations, collected significantly less than a million dollars in annual revenue, and did not have more than approximately $513,000 in cash on hand. ZARKIEWICZ made these misrepresentations to induce potential investors to purchase SingleClick shares, and to induce existing investors to purchase additional shares and/or refrain from requesting redemptions of their investments. ZARKIEWICZ made these misrepresentations by, among other means, distributing fabricated bank, brokerage, financial, and tax statements to investors. As a result of his fraudulent scheme, ZARKIEWICZ collected and maintained approximately $5.5 million from approximately 30 victims.

In May and June 2013, investors learned that SingleClick had very little cash available and confronted ZARKIEWICZ. ZARKIEWICZ admitted to investors that he lied about SingleClick’s business performance, fabricated records, and misled investors about the number of investors in, and operation of, SingleClick. Notwithstanding representations made in preceding years by ZARKIEWICZ that SingleClick had millions of dollars in revenue – including representations that SingleClick had generated $48 million in revenue in 2012 – since mid-2009, SingleClick has actually been generating thousands of dollars in revenue, not millions, and SingleClick’s total aggregate bank account balances have not exceeded approximately $513,000. In August 2013, after admitting his fraudulent conduct, ZARKIEWICZ resigned as CEO of SingleClick.

ZARKIEWICZ, 41, of Toms River, New Jersey, pled guilty to a two-count Information charging him with securities fraud and wire fraud. Each of the charges carries a maximum term of 20 years in prison. In addition, ZARKIEWICZ agreed to forfeit $5.5 million as well as any remaining proceeds in SingleClick bank accounts, and pay restitution as ordered by the Court. ZARKIEWICZ is scheduled to be sentenced by Judge Cote on March 28, 2014, at 11:00 a.m.

Mr. Bharara praised the investigative work of the FBI.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.StopFraud.gov.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney David I. Miller is in charge of the prosecution. Assistant U.S. Attorney Paul Monteleoni is in charge of the asset forfeiture related to the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that RONALD UY pled guilty today in Manhattan federal court to assisting Illya Trincher, a leader of an international sportsbook with ties to Russian-American organized crime, with structuring financial transactions. Trincher previously pled guilty in Manhattan federal court in connection with his leadership role in the operation of a high-stakes illegal sports gambling business. UY was charged in April 2013 along with 33 other alleged members and associates of two Russian-American organized crime enterprises in an indictment that included racketeering, money laundering, extortion, and various gambling offenses. UY pled guilty before U.S. District Judge Jesse M. Furman.

Manhattan U.S. Attorney Preet Bharara said: “Ronald Uy consorted with Illya Trincher, a leader of a high-stakes gambling operation with ties to Russian-American organized crime, and broke the law when he aided Trincher in concealing the enterprise’s ill-gotten gains. But thanks to the efforts of law enforcement, Uy, like the 18 others before him, has admitted his guilt and now stands convicted.”

According to the Indictment, other documents filed in Manhattan federal court, and statements made at various proceedings in this case, including today’s guilty plea:

Trincher and co-defendant Hillel Nahmad ran a high-stakes illegal gambling business that catered primarily to millionaire and billionaire clients. Their business utilized several online gambling websites that operated illegally in the United States to generate tens of millions of dollars of sports bets each year. UY was a branch manager at a bank in Manhattan (the “Bank”). UY assisted Illya Trincher on several occasions in structuring deposits at the Bank so as to avoid triggering reporting requirements at the bank.

UY, 33, of Queens, New York, faces a maximum of five years in prison and three years of supervised release. He is scheduled to be sentenced by Judge Furman on March 27, 2014, at 3:00 p.m.

UY is the 19th defendant in this case to plead guilty. The defendants who have pled to date have agreed to forfeit, in total, more than $66,000,000.00. The following defendants previously pled guilty and await sentencing:

• Bryan Zuriff pled guilty to gambling charges on July 26, 2013;
• William Barbalat pled guilty to gambling charges on August 14, 2013;
• Kirill Rapoport pled guilty to gambling charges on August 16, 2013;
• Edwin Ting and Justin Smith pled guilty to gambling charges on September 4, 2013;
• Dmitry Druzhinsky and David Aaron pled guilty to gambling charges on October 4, 2013;
• Alexander Zaverukha pled guilty to gambling charges on October 10, 2013;
• Nicholas Hirsch pled guilty to conspiring to commit wire fraud on October 16, 2013;
• Anatoly Shteyngrob pled guilty to conspiring to commit money laundering on October 17, 2013;
• Yugeshwar Rajkumar pled guilty to gambling charges on October 18, 2013;
• Stan Greenberg pled guilty to conspiring to commit racketeering on October 22, 2013;
• Arthur Azen pled guilty to conspiring to commit money laundering and conspiring to collect extensions of credit by extortionate means on November 5, 2013;
• Hillel Nahmad pled guilty to gambling charges on November 12, 2013;
• Vadim Trincher pled guilty to conspiring to commit racketeering on November 14, 2013;
• Eugene Trincher pled guilty to gambling charges on November 14, 2013;
• Anatoly Golubchik pled guilty to conspiring to commit racketeering on November 15, 2013; and
• Illya Trincher pled guilty to gambling charges on November 15, 2013.

The charges against the remaining defendants who have not pled guilty are merely accusations, and they are presumed innocent unless and until proven guilty.

Mr. Bharara praised the investigative work of the Federal Bureau of Investigation, New York City Police Department, and Internal Revenue Service – Criminal Investigation.

The case is being prosecuted by the Office’s Organized Crime Unit. Assistant U.S. Attorneys Harris M. Fischman, Joshua A. Naftalis, Peter Skinner, and Kristy J. Greenberg of the Organized Crime Unit are in charge of the prosecution. Assistant U.S. Attorneys Alexander Wilson and Christine Magdo of the Office’s Asset Forfeiture Unit are responsible for the forfeiture aspects of the case.

U.S. v. Alimzhan Tokhtakhounov, et al. Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, announced that RONALD UY pled guilty today in Manhattan federal court to assisting Illya Trincher, a leader of an international sportsbook with ties to Russian-American organized crime, with structuring financial transactions. Trincher previously pled guilty in Manhattan federal court in connection with his leadership role in the operation of a high-stakes illegal sports gambling business. UY was charged in April 2013 along with 33 other alleged members and associates of two Russian-American organized crime enterprises in an indictment that included racketeering, money laundering, extortion, and various gambling offenses. UY pled guilty before U.S. District Judge Jesse M. Furman.

Manhattan U.S. Attorney Preet Bharara said: “Ronald Uy consorted with Illya Trincher, a leader of a high-stakes gambling operation with ties to Russian-American organized crime, and broke the law when he aided Trincher in concealing the enterprise’s ill-gotten gains. But thanks to the efforts of law enforcement, Uy, like the 18 others before him, has admitted his guilt and now stands convicted.”

According to the Indictment, other documents filed in Manhattan federal court, and statements made at various proceedings in this case, including today’s guilty plea:

Trincher and co-defendant Hillel Nahmad ran a high-stakes illegal gambling business that catered primarily to millionaire and billionaire clients. Their business utilized several online gambling websites that operated illegally in the United States to generate tens of millions of dollars of sports bets each year. UY was a branch manager at a bank in Manhattan (the “Bank”). UY assisted Illya Trincher on several occasions in structuring deposits at the Bank so as to avoid triggering reporting requirements at the bank.

UY, 33, of Queens, New York, faces a maximum of five years in prison and three years of supervised release. He is scheduled to be sentenced by Judge Furman on March 27, 2014, at 3:00 p.m.

UY is the 19th defendant in this case to plead guilty. The defendants who have pled to date have agreed to forfeit, in total, more than $66,000,000.00. The following defendants previously pled guilty and await sentencing:

• Bryan Zuriff pled guilty to gambling charges on July 26, 2013;
• William Barbalat pled guilty to gambling charges on August 14, 2013;
• Kirill Rapoport pled guilty to gambling charges on August 16, 2013;
• Edwin Ting and Justin Smith pled guilty to gambling charges on September 4, 2013;
• Dmitry Druzhinsky and David Aaron pled guilty to gambling charges on October 4, 2013;
• Alexander Zaverukha pled guilty to gambling charges on October 10, 2013;
• Nicholas Hirsch pled guilty to conspiring to commit wire fraud on October 16, 2013;
• Anatoly Shteyngrob pled guilty to conspiring to commit money laundering on October 17, 2013;
• Yugeshwar Rajkumar pled guilty to gambling charges on October 18, 2013;
• Stan Greenberg pled guilty to conspiring to commit racketeering on October 22, 2013;
• Arthur Azen pled guilty to conspiring to commit money laundering and conspiring to collect extensions of credit by extortionate means on November 5, 2013;
• Hillel Nahmad pled guilty to gambling charges on November 12, 2013;
• Vadim Trincher pled guilty to conspiring to commit racketeering on November 14, 2013;
• Eugene Trincher pled guilty to gambling charges on November 14, 2013;
• Anatoly Golubchik pled guilty to conspiring to commit racketeering on November 15, 2013; and
• Illya Trincher pled guilty to gambling charges on November 15, 2013.

The charges against the remaining defendants who have not pled guilty are merely accusations, and they are presumed innocent unless and until proven guilty.

Mr. Bharara praised the investigative work of the Federal Bureau of Investigation, New York City Police Department, and Internal Revenue Service – Criminal Investigation.

The case is being prosecuted by the Office’s Organized Crime Unit. Assistant U.S. Attorneys Harris M. Fischman, Joshua A. Naftalis, Peter Skinner, and Kristy J. Greenberg of the Organized Crime Unit are in charge of the prosecution. Assistant U.S. Attorneys Alexander Wilson and Christine Magdo of the Office’s Asset Forfeiture Unit are responsible for the forfeiture aspects of the case.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that CARMINE FRANCO and ANTHONY PUCCIARELLO pled guilty today in Manhattan federal court in connection with their roles in an illegal scheme to exert control over the commercial waste-hauling industry in the greater New York City metropolitan area and in parts of New Jersey. FRANCO and PUCCIARELLO, who were among 32 defendants charged in January 2013 in connection with the scheme, pled guilty today before U.S. District Judge P. Kevin Castel.

Manhattan U.S. Attorney Preet Bharara said: “With today’s guilty pleas, Carmine Franco and Anthony Pucciarello become the latest defendants to be held to account for their roles in a criminal racketeering enterprise that encircled the waste-hauling industry in the New York City area and parts of New Jersey. This Office will continue working with our law enforcement partners to pry loose the tentacles of organized crime from around the industries it tries to control.”

According to the Indictment against FRANCO and PUCCIARELLO, other documents filed in Manhattan federal court, and statements made at related court proceedings:

FRANCO, who is an associate of the Genovese Crime Family, participated in a criminal enterprise, along with other members and associates of three different Organized Crime Families of La Cosa Nostra (“LCN”) – the Genovese, Gambino, and Luchese Crime Families – to control various waste disposal businesses in the New York City metropolitan area and multiple counties in New Jersey. Members of the enterprise engaged in various crimes in furtherance of the enterprise’s aims, including extortion, loansharking, mail and wire fraud, and stolen property offenses. As part of his guilty plea, FRANCO, who had been barred by the State of New Jersey from participating in the waste hauling industry, acknowledged his membership in the criminal enterprise and his agreement with others to undertake at least two racketeering acts in furtherance of the enterprise. Specifically, FRANCO acknowledged that he committed mail and wire fraud by overbilling customers of a waste transfer station that he controlled in West Nyack, New York. He also acknowledged that he and his associates transported large volumes of stolen cardboard across state lines.

As part of his involvement in the scheme, PUCCIARELLO, an associate of the Genovese Crime Family, was aware that other members of the scheme were conspiring to use extortion to obtain an ownership percentage in a business owned by a cooperating Government witness (“CW-1”). PUCCIARELLO did not report this extortion to law enforcement authorities and agreed to conceal the percentage of CW-1’s business that PUCCIARELLO would own following the extortion.

FRANCO, 78, of Ramsey, New Jersey, pled guilty to one count of racketeering conspiracy, one count of conspiracy to commit mail and wire fraud, and one count of conspiracy to transport stolen goods interstate, and faces a maximum sentence of 45 years in prison. As part of his plea agreement, FRANCO has agreed to forfeit $2,500,000 to the United States. He is the fifteenth defendant in this matter to plead guilty, and is scheduled to be sentenced by Judge Castel on March 19, 2014, at 2:30 p.m.

PUCCIARELLO, 78, of Bloomfield, New Jersey, pled guilty to one count of misprision of extortion, and faces a maximum sentence of three years in prison. He is the sixteenth defendant in this matter to plead guilty, and is scheduled to be sentenced by Judge Castel on March 21, 2014, at 2:00p.m.

The charges against the remaining defendants are merely accusations, and these defendants are presumed innocent unless and until proven guilty.

Mr. Bharara praised the investigative work of the Federal Bureau of Investigation and the Westchester County Police Department.

The prosecution of this case is being handled by the Office’s Organized Crime Unit.

Assistant United States Attorneys Brian R. Blais, Natalie Lamarque, and Patrick Egan are in charge of the prosecution. Assistant United States Attorney Micah Smith of the Office’s Asset Forfeiture Unit is responsible for the forfeiture aspects of the case.